BoE’s Mann to keep eye on medium-term inflation expectations

LONDON (Reuters) -Bank of England policymaker Catherine Mann said on Tuesday she viewed medium-term inflation expectations as one of the best gauges for how much further the BoE will need to raise interest rates, and when they can start to be cut.

“Looking at medium-term expectations is a very important ingredient to my assessment of what the appropriate Bank Rate at the next vote might be,” Mann said at an online event hosted by The Conference Board, a U.S. business organisation.

The BoE releases its next quarterly survey of the British public’s inflation expectations on Dec. 9, before its Dec. 15 interest rate decision.

British consumer price inflation hit a 41-year high of 11.1% in October, and last month the BoE raised interest rates by three quarters of a percentage point to 3%, its biggest rate rise since 1989.

Mann said she was concerned how price rises that were originally driven by post-pandemic bottlenecks and a surge in energy costs after Russia’s invasion of Ukraine were now visible across a wide range of services.

“This is a dramatic change in the underlying pace of inflation,” she said. “It is this embeddedness that is a concern for the central banker.”

Mann, who voted for faster rate rises than most of her BoE colleagues this year, reiterated her view that rapid increases in interest rates were an effective way to tame inflation expectations, and that rates could be cut once these had eased.

Financial markets expect the BoE to raise rates to 3.5% in December, and for rates to peak at 4.5% or slightly higher in the middle of next year.

(Reporting by David Milliken; Editing by Frank Jack Daniel and Elizabeth Piper)