Bank of England (BOE) policymakers warned that it will take some time to ensure inflation falls back to 2 per cent , their latest effort to push back against market expectations for interest rate cuts next year.
As four of the central bank’s nine-member Monetary Policy Committee (MPC) — including governor Andrew Bailey — told parliament that investors are focusing too much on a sharp drop in the inflation rate to 4.6 per cent.
“I really think the market is putting too much weight on the current data releases and the fact that we’ve seen inflation come down quite rapidly,” Mr Bailey said. “We are concerned about the persistence of inflation on the rest of the journey.”
Catherine Mann, the most hawkish member of the MPC who has continually been pushing for rate hikes, said she was in favor of pushing up rates further because “actions speak louder than words, especially when you deal with the markets.” At the moment, she said, holding rates at their current level risked inflation becoming “stuck” above the 2 per cent target.
“While I acknowledge that the monetary policy stance has started becoming restrictive, it is so only recently and not by so much,” Ms Mann wrote in an annual report published by the treasury committee. She added that she continued “to see upside potential for sales and employment.”
Mr Bailey, who has voted along with the majority of the MPC to keep rates steady at 5.25 per cent for the last two meetings, said he was “basically in the same place” as Ms Mann, although they differed in their strategy to tackle inflation “at the margin.”
BOE deputy governor Dave Ramsden said he “would not rule out” further rate hikes and “a restrictive policy stance is likely to be warranted for an extended period of time.”
While MsMann saw greater upside risks to inflation than some of her colleagues, she also said she was “more optimistic on the outlook for demand than that which is associated with the latest forecast of 7 quarters of zero GDP growth.” Even so, “anaemic is how I would characterize growth prospects,” she said. – Bloomberg