BoE Interest Rate-Setter Criticizes Central Bank's Iran War Response

Bank of England (BoE) interest rate-setter Catherine Mann has expressed concerns that the central bank's initial response to the Iran war was inadequate, leading to a rise in borrowing costs and expectations of higher inflation.

Mann, an economist and member of the BoE's Monetary Policy Committee, stated that the increase in market interest rates after the outbreak of the war reflected expectations of higher inflation and possibly a 'monetary policy uncertainty premium.'

She attributed this risk premium to errors in the BoE's initial response in March, when the bank held interest rates with a message perceived as 'wait mode' rather than taking necessary action to control inflation.

Mann noted that real financial conditions are insufficiently tight and suggested that the appropriate response is not to rely on risk premia but to reduce inflation risk and policy uncertainty through a clearly communicated reaction function and a sufficiently restrictive path for Bank Rate.