BoE's Mann warns of embedded inflation risk reaching 4 percent by year-end

Bank of England policymaker Catherine Mann has warned that inflation above the central bank's 2% target appears to be becoming embedded in the UK economy. Speaking at a conference hosted by TS Lombard, Mann expressed concerns that inflation could become further entrenched in wage negotiations early next year, as reported by Reuters. Mann, who joined the Monetary Policy Committee in 2021, has consistently voted for quarter-point rate increases in recent months, including in July and September. She criticized the Bank of England's approach in March, suggesting it had mistakenly signaled a wait-and-see stance on rate hikes following the start of the Iran war.

Unlike the European Central Bank and the US Federal Reserve, the Bank of England has kept interest rates unchanged since the conflict began. However, financial markets now anticipate a rate move at its upcoming November meeting. Mann highlighted her concern that inflation could reach 4% around the turn of the year, a critical period for annual pay negotiations. Other Monetary Policy Committee members have also indicated they will monitor for signs of outsized wage increases, noting a weaker job market compared to the last inflation surge in 2022.

Mann described economic demand in Britain as positive but not strong, with businesses adapting to higher energy costs. She cited examples such as a manufacturer installing solar panels. Additionally, she noted that recent upward revisions to labor productivity data were driven by adjustments to hours worked, which could limit the economy's capacity for non-inflationary growth in the future.