Mann Criticizes BoE's Initial Response to Iran War Impact on Inflation

Bank of England (BoE) interest rate-setter Catherine Mann said the central bank made mistakes in its initial response to the Iran war's impact on inflation. The BoE held interest rates steady in March, sending a message that investors perceived as 'wait mode' rather than taking decisive action.

Mann stated that the rise in market interest rates after the outbreak of the Iran war reflected expectations of higher inflation and possibly a 'monetary policy uncertainty premium'. She traced this risk premium to the BoE's initial response, which contributed to higher borrowing costs for households, businesses, and government.

Mann's comments differ from those of Governor Andrew Bailey and others on the Monetary Policy Committee (MPC), who have said that the rise in market borrowing costs gave the BoE time to consider raising rates itself. Mann also cited research showing that market uncertainty about the interest rate path rose after the March meeting, contributing to higher borrowing costs.

The BoE's decision not to publish a baseline forecast in its quarterly economic projections added to the sense of uncertainty around its intentions. Mann emphasized the need for clear communication and a sufficiently restrictive path for Bank Rate to reduce inflation risk and policy uncertainty.