A senior Bank of England policymaker has said Britain’s central bank could raise rates again next month to combat the risk of high inflation persisting into 2023.
Catherine Mann, a former Citigroup economist who joined the BoE’s nine-strong monetary policy committee (MPC) last year, said on Thursday that soaring prices of energy and food will persist next year, even if consumer demand weakens.
Some economists have forecast that the UK economy will shrink in the second quarter and possibly fall into recession following a collapse in consumer and business confidence in the wake of Russia’s invasion of Ukraine that is likely to worsen shortages of goods and push inflation to fresh highs.
However, Mann said it was important for the central bank to calm inflation expectations, which were likely to drive demands for higher wages, pushing inflation even higher.
“The domestic inflation ratchet … has been my central concern,” she said in a speech.
In February when the MPC voted for a 0.25-point increase in the base rate she voted with a minority for a sharper 0.5-point rise. Last month she voted with almost all other members for a 0.25-point rise, taking the base rate to 0.75%.
She said: “Monetary policy needs to keep inflation expectations anchored; by doing so now, less tightening will be required later, when demand may still be weak.”
The BoE will meet on 5 May to decide on the path of interest rates at a time when most households have begun to absorb a rise in national insurance contributions and a freeze on income tax thresholds that will push hundreds of thousands of taxpayers into higher tax brackets.
Inflation hit a 30-year high of 7% in March, and the BoE last month warned that the bigger-than-expected pickup in prices would
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