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BoE official hints at further interest rate hikes in coming months

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Bank of England policymaker Catherine Mann indicated on Friday that more interest rate hikes would be needed in the coming months, and said current price and wage expectations were “inconsistent with the central bank’s 2% inflation target.

“In 2022, current expectations for prices and wages from the monthly panel of decision makers [a monthly business survey] are inconsistent with the 2% target, and if achieved in 2022 are likely to keep inflation strong for longer,” Mann said.

In a speech to the Official Forum of Monetary and Financial Institutions, a central banking think tank, she told delegates that monetary policy should “moderate 2022 expectations for wage and price increases to prevent them from being integrated into corporate decision-making. and consumers”.

Andrew Goodwin, an economist at Oxford Economics, said the speech contained “a clear message that multiple interest rate hikes are on the way”.

Presenting the latest data, Mann noted that companies have not only raised prices more in the past year than before the coronavirus pandemic, but are planning to make similarly large increases in the coming months. to come.

“It should be concerning that 2021 costs are reflected in price expectations for 2022,” she said, adding, “Shifting expectations are the first defense against a strengthening of wage-price dynamics.” .

“In my view, the objective of monetary policy now should be to build on this ‘strong for longer’ scenario,” she said, alluding to rate hikes.

Many economists expect the BoE to raise rates to 0.5% on Feb. 3, after raising them to 0.25% in December in the first hike in more than three years. Mann was among the members of the Monetary Policy Committee supporting the hike. At the time, the central bank warned that further “modest tightening” would likely be needed to meet the 2% inflation target.

Other central banks plan to tighten policy as inflation rises. The US Federal Reserve kept interest rates at a record high, but warned it may have to raise them sooner and at a faster pace than expected. However, the European Central Bank said in December that it was “very unlikely” to raise rates this year.

Britain’s Office for National Statistics said on Wednesday that UK inflation hit a 30-year high of 5.4%, and many economists predict it will peak in April above the latest estimate of 6% of the BoE.

Mann said the inflation surge in 2021 was initially seen as transitory, but has now “morphed into multiple product categories and labor markets,” all measures of underlying inflation being well above the MPC target.

She stressed that the tightening of monetary policy was not intended to make the UK’s cost of living squeeze worse, but rather the opposite. “My goal is to bring inflation back to target so that workers can enjoy real wage gains through their work,” she said.

But Goodwin said his “suggestion that adding to these pressures now will mean consumers suffer less in the future is not very compelling.”