Bank of England's Mann content to slow tightening as inflation expectations ease
LONDON, March 24 (Reuters) - Bank of England policymaker Catherine Mann said on Friday that she voted for a quarter-percentage-point interest rate rise this week rather than a bigger increase because she saw signs that inflation expectations were now falling.
Mann said the BoE had raised interest rates more slowly than she would have liked in 2022, but that there were now signs that businesses and households expected inflation to fall, reducing the urgency for big interest rate rises.
This week was the first time in more than a year that Mann voted to increase rates by less than half a percentage point.
"We are at a point where we have gotten ... quite a way towards what an appropriate tightening is," she said in an online panel discussion hosted by the University of South Florida.
Many economists think that with its main interest rate now at 4.25%, up from 0.1% in December 2021, the BoE has come to the end of its tightening path. Financial markets still price in one more quarter-point rate rise for May or June.
Inflation unexpectedly rose to 10.4% in February, but BoE Governor Andrew Bailey has said he expects it to fall sharply over the remainder of the year.
Mann repeated her view that rapid, front-loaded rate rises were the best way to bring down inflation expectations and future inflation while minimising the impact on growth.
A regular Bank of England survey of businesses, published alongside Thursday's rate decision, showed that firms expected inflation to be 5.6% in a year's time, down from 6.2% three months earlier, though still well above the BoE's 2% goal.
"A key factor for me in agreeing with and also voting (with) the majority for a 25 basis point increase ... was that these forward-looking measures of price expectations ... had started to moderate, which is exactly the signal to me that my monetary policy is having an effect," Mann said.
Two members of the BoE's Monetary Policy Committee (MPC) have voted since December to keep interest rates on hold, arguing that the economic outlook was weak and that past rate rises would be more than enough to bring down inflation.
Mann said a bounce in retail sales data released earlier on Friday showed that the underlying economy remained solid.
"Real retail sales for February were pretty robust - and so monetary policy can work through expectations, as well as through aggregate demand," she said.
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