BoE Mishandled Iran War Response, Contributing to Higher Borrowing Costs

Catherine Mann, a member of the Bank of England's (BoE) Monetary Policy Committee (MPC), has admitted that the central bank mishandled its response to the Iran war in March. This mishandling contributed to higher borrowing costs in the UK.

Mann made this statement during a speech at the Nomura London Macro Forum on Thursday, January 10th. She attributed the rise in market interest rates after the outbreak of the Iran war to higher inflation expectations and a 'monetary policy uncertainty premium' rather than tighter financial conditions.

In her view, the BoE's initial response to the war was perceived as a 'wait mode' stance by investors, rather than a signal that action needed to be taken to contain inflation. This lack of clarity led to increased uncertainty over the path of interest rates and higher borrowing costs for households, companies, and governments.

Mann stated that she is not comfortable with tighter nominal financial conditions when most of the tightening reflects a higher inflation risk premium. She emphasized the importance of clear communication from the BoE in reducing policy uncertainty and maintaining a sufficiently restrictive interest-rate path.