By David Milliken
LONDON, July 2 (Reuters) – Bank of England policymaker Catherine Mann said on Thursday that she would be ready to vote for a rate rise if higher inflation expectations in the wake of the U.S.-Iran war make it less likely that inflation will return to its 2% target.
A BoE survey of the public’s expectations for inflation hit a record high in May, but last month the BoE trimmed its own forecast for later this year to a little above 3.25% compared with 3.6%-3.7% it predicted in April.
“If outturns – especially in expectations – are unfavourable to the underlying inflation process, an activist move can bring inflation expectations and outcomes toward the 2% target,” Mann said in a speech text released by the BoE before an event hosted by French bank Natixis.
Mann said she had held off voting for a BoE rate rise so far because the Iran war had pushed up market interest rates in Britain, offsetting inflation pressures, but will look at how rising inflation affects early discussions for 2027 wage deals.
“Given the seasonality of wage negotiations and their dependence on previous inflation and inflation expectations, data outturns — including the expectations for one-year-ahead — in the second half of this year are particularly important for my future decisions,” she added.
Fine-grained labour market data suggested the picture was less weak than the headline unemployment rate of 4.9% implied, she added.
Fiscal surprises could also affect the outlook for rates, she noted. Prime Minister Keir Starmer said last month he would stand down and he is likely to be replaced by former Greater Manchester Mayor Andy Burnham, who some investors think might pursue a looser budget policy.
Mann voted to keep interest rates on hold at 3.75% last month as part of a 7-2 majority on the Monetary Policy Committee but viewed upside inflation risks as more prominent than the other members who voted to keep rates on hold.
In minutes of the decision, she also said rates could need to rise in future if there was a “sporadic continuance” of conflict between the United States and Iran that led to a new increase in energy prices after the recent fall.
(Reporting by David Milliken; editing by Suban Abdulla)
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