Catherine Mann explained on Wednesday that her change in position is due to significant market fluctuations that led to a reduction in borrowing costs, which essentially acted to loosen financial conditions.
According to the Zhitong Finance APP, Catherine Mann, a UK central bank policymaker who previously supported significant interest rate cuts, advocated for a pause on rate cuts at last week's policy meeting, surprising personnel at the Bank of England. In response, Catherine Mann explained on Wednesday that her change of stance was due to significant market volatility leading to lower borrowing costs, effectively relaxing financial conditions.
For most of last year, Catherine Mann was regarded by economists as the most hawkish policymaker at the Bank of England. However, in February of this year, she suddenly supported a substantial rate cut of 50 basis points. After that, she voted to maintain the interest rate at the policy meetings in March and May.
As the trade war initiated by USA President Trump cast a shadow over the global economic outlook, the market increased bets that the Bank of England would accelerate the pace of rate cuts. Catherine Mann pointed out changes in market pricing, resilient employment data, and rising Commodity inflation. She indicated that the market expectations for rate cuts were at 75 basis points, while she supported a cut of 50 basis points.
Catherine Mann stated that during the current period of significant market volatility, small policy adjustments by the Bank of England are "easily drowned out." She also mentioned that she would not vote for further easing policies until she sees a further weakening of corporate pricing power. She expressed concern that companies may attempt to rebuild profit margins that have been squeezed in recent years, stating, "I need to see a decrease in corporate pricing power, and I need to see companies become more restrained in pricing. Import prices in the UK will trend moderate due to trade shifts, but there still exists a considerable profit margin from dock to shelf."
Catherine Mann pointed out that although the Labour government recently introduced fiscal stimulus policies, their effects have been offset by extreme caution in the household sector. She stated, "I was very Bullish on that Keynesian-style fiscal stimulus approach—but what we observed is that these stimuli were basically saved. Now, people are more concerned about fluctuations in wage income."
The high wage growth may lead the Bank of England to remain cautious.
The Bank of England is closely monitoring the inflationary pressures in the UK labor market while considering whether to accelerate the pace of interest rate cuts to protect the economy from the impact of Trump's policies. Last week, the Bank of England cut interest rates by 25 basis points as expected, lowering the rate to 4.25%. However, there is a three-way split within the Monetary Policy Committee (MPC) of the Bank of England: five members support a 25 basis point cut, two members advocate for a larger cut of 50 basis points, while another two members argue for maintaining the current rate.
On Monday, policymakers Clare Lombardelli and Megan Greene pointed out that there are inflation risks in the labor market, as wage growth remains too high compared to the Bank of England's 2% inflation target. However, another policymaker, Alan Taylor, stated that the "quite dangerous" trade situation is one of the reasons he voted in favor of a 50 basis point cut.
Data shows that in March, the three-month average wage excluding bonuses—an Indicator tracked by the Bank of England to measure domestic inflationary pressures—increased by 5.6% year-on-year, which is below economists' expectations of 5.7% and the previous value of 5.9%, marking the lowest growth rate in the last three months since November of last year.
Jack Kennedy, a senior economist at the global recruitment platform Indeed, stated that the Bank of England may continue to be wary of the risks posed by the still elevated wage growth in the UK. He said: "If wage growth pressure shows a more significant and sustained easing, it could open the door for quicker rate cuts, but the voting split in May by the Monetary Policy Committee highlighted a cautious attitude towards ongoing inflationary pressures."
