By Gergely Szakacs
BUDAPEST (Reuters) – Bank of England rate-setter Catherine Mann on Monday backed further increases in interest rates and warned that pausing, as some of her colleagues advocate, risked a confusing “policy boogie” if it turned out rates would need to rise again.
After hiking interest rates to 4% last week, the BoE’s Monetary Policy Committee (MPC) signalled it was close to pausing a run of increases which began in December 2021.
Mann, consistently the most hawkish member of the MPC, said the risk of under-tightening policy far outweighed the alternative.
“We need to stay the course, and in my view the next step in Bank Rate is still more likely to be another hike than a cut or hold,” Mann said in a speech delivered to the Lamfalussy Lectures Conference in Budapest.
Her comments coincided with research on Monday from consultancy Oxford Economics that showed Britain is among the countries most at risk from “monetary overkill” – tightening policy too far. On some metrics, Britain ranked top.
Mann, who held chief economist titles at the OECD and Citi, criticised the idea of pausing the rate hike cycle at this juncture, a course of action that two of her MPC colleagues – Swathi Dhingra and Silvana Tenreyro – voted for last week.
“In my view, a tighten-stop-tighten-loosen policy boogie looks too much like fine-tuning to be good monetary policy. It is both hard to communicate and to transmit through markets to the real economy,” Mann said.
There were upside risks to the inflation outlook, Mann said.
“From a risk-management point of view, monetary policy has to lean against these upside biases since wage and price inflation are still so high,” she said.
At the other end of the MPC spectrum, Dhingra and Tenreyro say over-tightening risked sending Britain’s economy into an unnecessarily severe downturn, with the full force of the BoE’s rate hikes yet to feed through.
The BoE’s own forecasts show inflation falling well below the 2% target in the coming years.
On Friday BoE Chief Economist Huw Pill, regarded as a centrist figure on the MPC, said it was important not to raise borrowing costs too high.
(Reporting by Gergely Szakacs in Budapest, writing by Andy Bruce in Manchester; editing by Sarah Young, William James and Kate Holton)