Interest rates should be raised further as inflation will stay high this year and next, warns Bank of England rate setter Catherine Mann. She said it was too soon to begin to think about cuts in the base rate, which is four per cent.
The central bank’s Monetary Policy Committee (MPC) has hiked its base rate 10 times since December 2021.
But Ms Mann said further hikes “sooner, rather than later” are likely to get inflation under control.
She added: “Monetary policy has taken a path which has been aggressive, but perhaps insufficiently so relative to the multiple shocks and the behaviours pushing up inflation.
“We have an inflation remit and will achieve it one way or another. Failing to do enough now risks the worst of both worlds.”
This month, the MPC’s nine members voted 7-2 to raise the base rate by half a percentage point to four percent and signalled that the run of rate hikes was close to ending.
However, in a speech to the Resolution Foundation think-tank, Ms Mann said there is not enough evidence to indicate that inflation is set to fall substantially.
She explained the sharp rise in energy costs from the third quarter of 2021 and throughout 2022 is affecting expectations for prices and wages.
This risks embedding high inflation and making it harder to get it back to the Bank’s two per cent target.
Market optimism had taken the sting out of the MPCs earlier rate hikes, reducing their effectiveness in curbing inflation, Ms Mann said.
She added: “I believe more tightening is needed and caution that a pivot is not imminent.”
Victoria Clarke, UK chief economist at Santander’s corporate and investment banking arm, said: “Concerns over sticky underlying inflation will likely force the Bank of England to hold policy at these restrictive levels this year, we think.
“We do not expect cuts in the base rate until 2024.”
