Catherine Mann, one of the Bank of England’s most forthright policymakers, has delivered a stark warning against market optimism over early interest rate cuts, insisting that the United Kingdom still faces entrenched inflationary risks that demand caution rather than haste.
In remarks given at a London policy forum, Mann argued that the Monetary Policy Committee (MPC) should maintain its current restrictive stance “persistently” rather than bow to growing calls for relief. With the Bank’s base rate standing at 5.25 per cent, its highest level since the financial crisis of 2008, households and businesses have already endured a painful adjustment to the sharp tightening cycle. Yet Mann maintained that the danger of cutting rates prematurely outweighs the discomfort of holding firm.
“Headline inflation may have eased from its peak,” she said, “but the underlying pressures, particularly in wages and services, remain elevated. To move too quickly now risks undoing the hard-won gains of the past two years.”
Inflation’s Stubborn Core
The Bank of England has faced a challenging task in steering the British economy through the aftermath of the pandemic, the energy shock triggered by Russia’s invasion of Ukraine, and the ongoing volatility in global supply chains. At its height in late 2022, UK inflation exceeded 11 per cent, far outpacing the Bank’s 2 per cent target and putting immense strain on household finances.
While the headline consumer price index has since fallen sharply, dropping to just above 2 per cent in recent months, Mann underscored that the “core” measures of inflation — stripping out volatile items such as food and energy — have proven far stickier. Services inflation, in particular, has remained elevated at around 6 per cent, fuelled by robust wage growth across key sectors.
This persistence, she argued, reflects more than temporary shocks: “We are still seeing signs that inflationary expectations are embedded in behaviour. Businesses are passing on higher costs to consumers, and workers are negotiating wage settlements well above the historical norm. These dynamics do not unwind overnight.”
A Divided Committee
Mann’s intervention highlights the increasingly divergent views within the MPC. Some members, noting the cooling housing market, a slowdown in consumer spending, and signs of weakening investment, believe that restrictive policy is already dragging too heavily on growth. They suggest that a gradual easing of rates later this year could provide necessary breathing space for the economy without derailing disinflation.
Others, led by figures such as Mann, remain deeply sceptical of this approach. They contend that Britain’s unique combination of high services inflation, labour market tightness, and structural challenges linked to Brexit and global trade fragmentation make it especially vulnerable to a resurgence of price pressures.
The September rate decision will therefore be watched closely by investors, economists, and politicians alike. Markets currently expect the first cut to come before the end of the year, but Mann’s remarks underscore that such assumptions are far from guaranteed.
Political and Social Implications
The trajectory of interest rates carries profound political consequences. With a general election looming within the next year, the government is eager to point to falling inflation as proof of economic competence. Ministers have quietly signalled their preference for the Bank to begin easing before voters head to the polls, arguing that lower mortgage costs could provide a timely boost to household finances.
Yet the Bank’s independence, enshrined in 1997, means that the MPC’s decisions are insulated from direct political interference. Mann’s emphasis on credibility and caution is, in many respects, a defence of that independence. “Our responsibility is to ensure that inflation returns to target sustainably,” she noted. “The greatest disservice we could do to the public is to cut prematurely and allow inflation to reignite.”
For households, the persistence of high borrowing costs has been acutely felt. Mortgage holders coming off fixed-rate deals have faced steep increases in monthly payments, while small businesses reliant on credit have struggled to manage the higher cost of finance. At the same time, savers have benefitted from improved returns on deposits, though these gains have been unevenly distributed.
The Global Context
Mann’s comments also place the Bank of England within a broader international debate. Across the Atlantic, the US Federal Reserve is wrestling with similar questions, balancing evidence of cooling inflation against a still-resilient labour market. In the eurozone, the European Central Bank has signalled that it too may hold rates higher for longer, wary of repeating the mistakes of the early 2010s when premature cuts undermined stability.
The common thread is caution: central banks, scarred by the unexpectedly stubborn surge in inflation after the pandemic, are determined not to be caught off guard again. For the UK, with its open economy and exposure to global shocks, this prudence may prove particularly necessary.
Uncertain Road Ahead
For now, markets, policymakers, and the public remain locked in a delicate waiting game. Each new set of economic data — on wages, prices, or growth — has the potential to tip expectations in one direction or another.
But Mann’s intervention makes one thing clear: those hoping for a rapid return to cheaper borrowing may have to temper their optimism. As she put it bluntly: “Patience is not easy when people are hurting. But the alternative — a return to double-digit inflation — would be far more painful in the long run.”