LONDON, Oct 6 (Reuters) – Inflation running above the Bank of England’s 2% target appears to have become embedded in the British economy and risks getting further entrenched in wage negotiations early next year, BoE policymaker Catherine Mann said on Tuesday.
Mann said last week that the BoE had erred in March, just after the start of the Iran war, by letting investors think it was happy to take a wait-and-see approach to raising rates. She voted in July and September for a quarter-point hike.
“We’ve had inflation well above target for the entire time that I’ve been in my position…. And so inflation has become embedded,” Mann, who joined the MPC in 2021, said at a conference hosted by economic advisors TS Lombard.
Unlike the European Central Bank and the US Federal Reserve, the BoE has kept interest rates unchanged since the outbreak of the Iran war, although financial markets do now expect a move at its November meeting.
Mann said she was particularly concerned that inflation looked set to hit 4% around the turn of the year, the most common period for employers to negotiate annual pay increases.
Other MPC members have said they will look for early signs of outsize wage increases, but have highlighted a weaker job market than when inflation last surged in 2022.
Mann said she did not think economic demand in Britain was strong, but it was positive. Businesses she had visited appeared to be adjusting to higher energy costs, for example a manufacturer which was installing solar panels.
Moreover, recent upward revisions to labour productivity data were driven by downward adjustments to hours worked – something she said might limit the economy’s capacity to deliver non-inflationary growth in future.
(Reporting by David Milliken; editing by William James and Suban Abdulla)
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