BOE Must Hike Faster to Stop Inflationary Pound Drop, Mann Says

(Bloomberg) — The Bank of England needs to raise rates more aggressively to stave off a sterling depreciation against the dollar that would drive inflation higher, policy maker Catherine Mann said.

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In a speech at a Market News International Connect event, she also argued that domestic inflation was likely to prove stronger than thought due two government support packages along with “strong employment, wide-spread bonuses as well as robust wage growth, strong housing values” and accumulated savings in the pandemic.

Mann voted for a half point rate rise at the BOE policy meeting last week. She was in a minority of three, with six members voted for a quarter point increase to 1.25%. The move followed a 75 basis points hike from the Federal Reserve a day earlier.

“In my view, a more robust policy move, based on both domestic conjuncture and commensurate with the global factor, reduces the risk that domestic inflation already embedded is further boosted by inflation imported via a Sterling depreciation,” Mann said in a text of the speech.

Sterling is down about 10% against the dollar so far this year. Mann said if the U.S. Federal Reserve tightens at the currently expected pace and the European Central Bank also hike rates, then the BOE should move quicker or risk seeing a sharp fall in sterling, which would boost inflation.

Past trends suggest a failure to pick up the pace of moves could add half a point to inflation over the course of a year, she said.

She also hinted of the need for rate cuts following the current tightening cycle.

“I open the door to a policy rate reversal in the medium term when the domestic supports to demand fade and when weakness in external sources of demand bite,” Mann said. “In my view this monetary policy path supports an inflation-output combination superior to that of the historical reaction.”

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