Written by David Milliken
LONDON (Reuters) – Inflation in Britain is far from over and is likely to fall further than the Bank of England forecasts in the medium term, BOE chief Catherine Mann said on Wednesday.
Mann cast the lone vote against cutting borrowing costs at a meeting of the BoE’s Monetary Policy Committee last week which decided 8-1 to cut the Bank Rate to 4.75% from 5%, and opposed the first rate cut in August. .
“We have an anti-inflationary bias … which tends to allow inflation to take hold, and in that case it’s important to hold (interest rates) longer,” Mann said at a conference hosted by BNP Paribas (OTC: ).
“If I have evidence that there has been a removal or a moderation of the continuation of inflation – an adequate measurement of the continuation of inflation – I will take a big step,” he said.
Last week the BoE revised down its inflation forecasts due to a lower minimum wage and short-term fiscal stimulus in the new Labor government’s first budget.
The BoE predicted that inflation would rise from 1.7% in September to 2.5% by the end of the year and not return to its 2% target until mid-2027, a year later than previously thought.
Financial markets only expect the BoE to cut rates twice next year, compared to at least five quarterly cuts forecast by the European Central Bank as the euro zone economy slows.
Mann said service price increases in Britain remained “pretty sticky”, although there were early signs that tourism businesses were finding it difficult to raise prices or pay higher wages.
Electricity prices are more likely to rise than fall in the coming years, adding to the high risk of inflation, he said.
“There are some opportunities in terms of the easing of inflationary pressures from costs coming out of China, for example. But against that … one piece of news is biased downward, one of which is an upward bias and potentially more volatile going forward in the medium term,” Mann said.
US President-elect Donald Trump’s threat of higher US tariffs on imports from China could lead to an increase in Chinese goods going to Europe at reduced prices, analysts say.
