UK inflation could stay above target for longer, warns Bank of England rate-setter

Bank of England (BoE) policymaker Catherine Mann warned on Thursday that UK inflation could remain persistently above the central bank's 2% target, urging caution over any early move to cut interest rates.

Speaking at the Institute of International Finance event in Washington, Mann said there was “very clear upside evidence” that price pressures may not ease as quickly as some expect.

She stressed that monetary policy must remain “relatively restrictive” to avoid the risk of inflation expectations becoming unanchored.

Despite acknowledging the UK’s “modest” growth outlook and signs of a softening labour market, Mann argued that the balance of risks still tilts toward inflation, not recession.

“There is very clear upside evidence of inflation being above target, staying sustained above target," she added: "The risks are not symmetrical,” cautioning against easing too soon.

Her comments underline a continued hawkish stance on the Bank’s Monetary Policy Committee (MPC), suggesting that interest rates may need to stay higher for longer, even as the economy shows signs of weakness.

The speech comes amid increasing speculation over when the BoE might begin cutting rates again, with markets closely watching inflation data and economic indicators in the months ahead.

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Mann has taken a hawkish stance on interest rates in recent months. She voted with the majority of the MPC in September to keep the BoE’s benchmark rate unchanged. However, in August, she was in the minority opposing a cut to 4%.

Earlier this month, Mann reiterated Thursday's stance, saying UK inflation had become persistently high, though she stopped short of ruling out future rate cuts entirely.

She also pointed to the scale of the inflation shock that followed the pandemic and energy crisis, arguing it had caused a sharp deviation from the UK’s pre-COVID price path.

It comes as the UK economy expanded by 0.1% in August, in line with market expectations, providing chancellor Rachel Reeves with a modest boost as she prepares for a challenging November budget.

The monthly GDP data, released by the Office for National Statistics (ONS), mirrored the forecast from economists polled by Reuters. It also marked a slight improvement over July, when the economy contracted by 0.1%, a figure that was revised down from an initial reading of zero growth.

Looking at a broader time frame, the economy grew 0.3% in the three months to August compared to the previous quarter, a rate that remained unchanged from the growth recorded in the second quarter of the year.

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