Interest rates ‘likely to need to rise again’
Interest rates will likely need to rise further despite early signs of a "turning point" in the battle against sky-high inflation, according to a Bank of England policymaker.
Catherine Mann, one of the nine interest rate setters at the bank, said it was too soon to pause hikes in the bank rate, warning that there are still big risks that inflation may prove stubborn, even if price rises appear to have passed their peak.
In a speech at the Lamfalussy Lectures Conference in Budapest, Hungary, Ms Mann said: "Uncertainty around turning points should not motivate a wait-and-see approach, as the consequences of under tightening far outweigh the alternative. We need to stay the course, and, in my view, the next step in bank rate is still more likely to be another hike than a cut or hold."
It comes after Bank governor Andrew Bailey reinforced speculation that last week's 10th rise in a row from 3.5 per cent to 4 per cent could be the last as he said there has been a "turning of the corner" on inflation in recent months.
The bank also upgraded its economic outlook for the UK, predicting that an expected recession will be shorter and shallower than previously thought. Inflation has already begun to come down off the highs of late last year, currently at 10.5 per cent against 11.1 per cent in October, and the Bank said it expects the measure to fall quickly in 2023.
But Ms Mann, one of the seven Monetary Policy Committee (MPC) members who voted to raise rates, said she still sees "material upside risks to our inflation outlook" and warned over being "complacent about inflation".
She said: "If there is uncertainty about the degree of inflation persistence, it is better
to assume a high degree because the costs of making a mistake if the true inflation process is more persistent are larger than if the true inflation process is less persistent."
She said not all the underlying
measures of inflation are easing back, adding that before halting rate hikes, she would want to see "a significant and sustained deceleration in higher frequency price increases and in the underlying inflation measures and expectations towards inflation rates that are consistent with achieving the 2 per cent target".