Catherine Mann, a member of the Bank of England's Monetary Policy Committee, has called for monetary policy to "cut through the noise" in explaining her recent decision to support a significant interest rate cut.
Mann, previously known for her hawkish stance, surprised markets by advocating for a 50 basis point rate cut, as reported by .
In a speech delivered in Leeds, she attributed her change in stance to the diminishing persistence of "embedded inflationary behaviours" due to weak demand in the economy.
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According to Mann, the expected weak consumption path will likely limit firms' pricing power and moderate cost pass-through.
Despite the Bank of England's two previous rate cuts, Mann noted that financial conditions had not significantly eased. This suggests a disconnect between the Bank's primary policy tool, the Bank Rate, and real-world borrowing costs, posing challenges for policymakers aiming to maintain the 2% inflation target.
Mann argued that a more proactive approach would provide domestic investors with clearer guidance on monetary policy direction, helping to keep financial conditions aligned with interest rate decisions.
She attributed the increase in borrowing costs despite rate cuts to "spillovers" from the US.
Catherine L. Mann, an external member of the Bank of England's Monetary Policy Committee, offered a stark assessment of current financial market challenges: "Financial market volatility coming importantly from international spillovers blurs the signal about the desired stance of monetary policy."
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"To ‘cut through the noise’, bolder action and more explicit communication of current stance and future path are needed," she said.
However, Mann also emphasized the necessity for monetary policy to remain tight in anticipation of forthcoming inflation surges. "The activist policymaker needs to maintain policy rate discipline and restrictiveness even after this immediate decision.
This ensures that, as we move through the inflation hump, expectations remain anchored both in the near and longer term," she explained.
The Bank of England's current projection estimates inflation reaching 3.7 percent later this year, with a return to the target only anticipated towards late 2027. Mann raised concerns over potential lingering "structural impediments" to hitting the inflation target, suggesting that such issues may still require a firmer policy stance.
Her 'activist' perspective contrasts sharply with the Bank of England's traditional approach of gradualism, which affords policymakers the opportunity to observe the effects of their decisions on the economy.
Mann expressed apprehension that external shocks might have "non-linear and asymmetric" repercussions, meaning that the overall impact of a shock could be significantly larger than the initial disturbance itself.
Her remarks put into question the efficacy of a gradualist method in managing these challenges.