Mann warns UK inflation risks becoming more entrenched

Bank of England policymaker Catherine Mann has warned that UK inflation could become more deeply entrenched, reinforcing her argument for higher interest rates. Speaking at a TS Lombard conference, Mann predicted that inflation would likely hit around 4% by the end of the year, roughly double the Bank’s 2% target. She emphasized the significance of this timing, as many companies set annual wages during this period.

Mann noted that while demand in the economy remains positive, businesses are adapting to higher energy costs. However, she cautioned that sustained above-target inflation could influence wage-setting and make it more difficult to bring down price pressures. Mann has consistently voted for a 25 basis-point increase in the Bank Rate at the past two Monetary Policy Committee meetings, in July and September.

At the latest meeting, the MPC voted 6-3 to keep rates at 3.75%, with Mann among the three members advocating for a rise to 4.0%. Markets are currently pricing in a rate increase at the Bank’s next meeting on 5 November, as policymakers balance persistent domestic inflation against signs of economic weakness elsewhere. Mann's remarks align with her recent speech, where she argued that the current monetary policy stance is “not sufficiently tight” and that policymakers cannot rely solely on market-driven tightening.

She also noted that market pricing implies over 100 basis points of tightening over the coming year, but part of the rise in UK borrowing costs reflects higher risk premia rather than expectations of Bank Rate itself. Mann stressed the need for continued Bank Rate increases to maintain credibility and prevent inflation expectations from rising further.