Inflation could rise in months ahead, Bank of England policymaker warns
Inflation could rise again, according to experts
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Inflation could be pushed up once gain if wages continue to grow, a Bank of England policymaker has warned.
Catherine Mann, who is a member of the Monetary Policy Committee (MPC) believes the UK should not be "seduced" into thinking the consumer price index (CPI) will continue to be low.
In the last two years, the central bank has raised the base rate as part of its efforts to ease inflation, reaching a 16-year high of 5.25 per cent by August 2023.
As a consequence of this decision, mortgage and debt costs have skyrocketed while savings rates have been awarded with a boost.
With the CPI rate easing to two per cent in May 2024, the Bank's desired target for inflation was reached.
Earlier this month, the financial institution's MPC narrowly voted to cut the base rate from 5.25 per cent to five per cent.
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Inflation has fallen which will benefit Britons GETTY Speaking to the Financial Times newspaper, Mann cited survey evidence that indicates companies expect to increase wages and prices.
Wage growth is considered to be inflationary which she claims could be a "problem for next year".
Despite the Bank of England's recent rate cut, the MPC struck a cautious tone about further cuts.
Many economists believe interest rates will be unchanged when the committee meets again in September.
As a former chief executive of the OECD, Mann is one of the four rate-setters who opted to leave the base rate unchanged at the last meeting.
She explained: "Inflation has come down but… we shouldn’t be seduced by headline inflation because of the role of energy and external aspects working through.
This is primarily in reference to the recent drop in energy prices with economists sounding the alarm that upward inflationary pressures in the economy have been hidden by it.
Certain members of the MPC are of the belief that strong wage growth will take more time to ease.
Mann added: "There is an upwards ratchet to both the wage setting process and the price process and . . . it may well be structural, having been created during this period of very high inflation over the last couple of years. That ratchet-up will take a long time to erode away."
According to the economist, it could take "multiple years" for wages to reach workers’ expectations.
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Last week, the Bank of England voted to cut interest rates GETTY "There are a lot of vacancies, there’s a lot of desire to employ people and there don’t seem to be workers out there," Mann said.
Mann was speaking ahead of several economic announcements in mid-August, including an update on jobs and wages, and on the headline rate of inflation.
She also suggested that recent volatility in global stock markets has the potential to add upward pressure to inflation and that the Bank could be tempted to keep rates higher for longer as a result.
The Bank of England's Monetary Policy Committee (MPC) will next make a base rate announcement on September 17, 2024.