— Mann, Tenreyro argue for steady policy as recovery slows
— Comments follow more hawkish stance from Bailey, Saunders over the weekend
LONDON (MaceNews) — A brace of Bank of England officials dampened speculation of a near-term increase in UK interest rates on Thursday, arguing that the longer-term inflationary outlook remains benign.
“I can wait” to actively tighten monetary policy, as “a lot of endogenous tightening of financial conditions” is already under way, said Catherine Mann, external member of the Bank’s Monetary Policy Committee. Mann took up her role last month.
Her comments during an online discussion organized by the Euro50 Group follow published remarks from fellow external member Silvana Tenreyro, a long-time BOE dove, arguing that a rate increase would be “counterproductive” in an interview with online outlet BusinessLive Wales. “It would be self defeating to try to respond” to supply shocks that will exert “a short-lived effect on inflation,” she added.
Those comments are at odds with the more hawkish tone adopted by Governor Andrew Bailey, who expressed “concern about inflation” in an interview with the Yorkshire Post published over the weekend. Late last month, Bailey admitted that the Bank’s monetary policy committee agreed that rates could rise before the end of the current quantitative easing programme, which will be exhausted this year. BOE watchers will keep an eye on Governor Bailey’s appearance at the G30 International Banking Seminar scheduled on Sunday.
His view was echoed by external member Michael Saunders, who told the Sunday Telegraph that expectations of a near-term rate hike are “appropriate.” Saunders has voted for an immediate halt to asset buying over the past two meetings. Investors have begun to price in a 15-basis point rise in the bank rate in December.
Inflation jumped to an annual rate of 3.2% in August from the Bank’s 2.0% target in July, although pandemic-related tax cuts in 2020 accounted for a large chunk of that increase. Nonetheless, the Bank of England expects CPI to top 4% by the end of the year, and many forecasters look for inflation to stretch toward 6% by next spring. September inflation data are due on Wednesday, 20 October.
Recent readings of British inflation have fallen below those in the U.S. and the Eurozone, but even the dovish Mann admitted that an “open” economy like the UK could be vulnerable to price pressures over the medium term. British firms may have “relatively more” pricing power, given recent backlogs at UK ports and volatility in the sterling exchange rate, she noted.
The cloudiness over monetary policy comes amid signs that the UK recovery slowed markedly in the third quarter. Gross domestic product rose by a smaller-than-expected 0.4% in August, after contracting by 0.1% in July. Widespread shortages of motor fuel and surging natural gas prices are expected to dampen output in September, raising the prospect that UK output contracted in the third quarter.