BoE's Mann Warns of Embedded Inflation in UK Economy

Bank of England policymaker Catherine Mann warned that high inflation has become deeply embedded in the UK economy. Speaking at a conference hosted by TS Lombard, Mann noted that inflation has remained well above the central bank's 2% target since she joined the Monetary Policy Committee in 2021. She expressed concerns that the situation could worsen during wage negotiations early next year, as inflation is expected to hit 4% around that time.

Mann criticized the BoE's approach in March, shortly after the start of the Iran war, for giving investors the impression that the bank was content to adopt a wait-and-see stance on rate hikes. She has voted for a quarter-point increase in both July and September meetings. Unlike the European Central Bank and the US Federal Reserve, the BoE has kept interest rates unchanged since the conflict began, though markets now anticipate a move at the November meeting.

While Mann acknowledged that economic demand in Britain is not strong, it remains positive. She observed that businesses are adapting to higher energy costs, such as a manufacturer installing solar panels. However, recent revisions to labor productivity data, driven by adjustments to hours worked, could limit the economy's ability to achieve non-inflationary growth in the future.