BoE's Catherine Mann plays down inflation concerns
By Benjamin Chiou
Date: Tuesday 11 Feb 2025
(Sharecast News) - Subdued domestic demand and a weak labour market are likely to keep a lid on inflationary pressures this year, according to a Bank of England policymaker who voted for an 'activist' 50-basis point cut in interest rates last week.
Catherine Mann, who's been a member of the Monetary Policy Committee since 2021, said the 6 February decision to lower interest rates to a two-year low of 4.5% was taken "against a backdrop of surprisingly weak economic activity in the second half of 2024 along with a modest further loosening in the labour market".
The American economist, previously known as one of the more hawkish members of the MPC, was one of the two policymakers who voted for a 50bp cut in the Bank Rate; they were outvoted by the seven remaining members who opted for a 25bp reduction.
In a statement on Tuesday outlining reasons behind her vote, Mann said that GDP is expected to remain weaker than projected last November, while the unemployment rate is forecast to be "somewhat higher".
Meanwhile, inflation is projected to rise to 3.7% in the third quarter of 2025 but won't return to the 2% target until the fourth quarter of 2027.
"I judge that the current and likely continued weak demand conditions will lead to a further loosening of the labour market which tend to follow non-linear dynamics. Thus, even if near-term inflation expectations firm on the back of the inflation hump, these factors likely will restrain pass-through to wages and prevent second-round effects from setting in," Mann said.
Concerns have risen in recent months that rising labour-market costs - notably, the mandated increase in employer National Insurance contributions announced in the Autumn Budget, along with a higher national living wage - and overall economic conditions will lead to companies pushing up prices to pass on higher inputs to consumers.
However, Mann said: "Looking beyond 2025, I judge that the dynamics of soft sales volumes, already observed for a year, will be accentuated as household savings rates remain high, both as an ongoing precaution against volatility in purchasing power and then also on account of heightened unemployment concerns.
"This likely soft consumption profile will constrain firms' pricing power and will moderate pass-through of costs."
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