In a lecture at Leeds Beckett University, Catherine Mann, a Bank of England policymaker, explained that she advocated for a half-point interest rate cut last week to navigate conflicting opinions on policy direction. Despite this move, Mann emphasized the need for rates to remain stringent due to lingering obstacles in meeting inflation targets. She asserted the necessity for sustained policy discipline and constraint even after the immediate decision, rejecting the gradualist approach favored by most policymakers.
Mann's unexpected vote for a 0.5% interest rate reduction contrasted with the majority's support for a 0.25% cut. Formerly known for her hawkish stance, Mann's shift reflected her belief that maintaining a more proactive strategy might require quicker rate adjustments in the future. She specified a higher long-term Bank Rate as part of her strategy to navigate complexities in policy decisions. Mann projected Britain's long-term equilibrium interest rate towards the upper range of 3-3.5%.
Although the Bank of England slashed its 2025 growth forecast to 0.75%, anticipating a rise in inflation to about 3.7% by the third quarter of this year, Mann's focus remained on upholding policy restrictiveness to anchor inflation expectations in both the short and long term. She noted signs of businesses reverting to pre-COVID pricing patterns and highlighted potential constraints on consumer demand due to labor market challenges, limiting businesses' ability to pass on increased costs.
Mann concluded that the decreased risk of entrenched inflationary behaviors justified easing monetary policy restrictiveness.