Catherine Mann has become the public face of the Bank of England’s hawks. In a speech on October 1 she said the Bank had mishandled its first response to the Iran war shock, framing policy as in wait mode when action was needed, and that the resulting rise in market rates reflects an inflation risk premium and a monetary policy uncertainty premium rather than genuinely tighter conditions. Real financial conditions, she argued, are insufficiently tight, and the Bank should reduce inflation risk through a clearly communicated and sufficiently restrictive path for Bank Rate.
The arithmetic supports her prominence. When the Monetary Policy Committee held Bank Rate at 3.75 percent on September 17, its sixth consecutive hold, three of the nine members, Mann, Megan Greene and Huw Pill, voted to raise it to 4.00 percent. A shift by two more members would tip the committee. UK inflation rose to 3.1 percent in August from 2.9 percent in July, and Mann has warned it could reach about 4 percent around the turn of the year, exactly when annual pay rounds are set.
Markets are listening. Investors expect an increase to 4 percent in November, and the 10 year gilt yield touched 5.53 percent on October 8, its highest since July 2007. All three dissenters have spoken in public this week, and Governor Andrew Bailey follows on Friday, leaving the November 5 decision unusually well signposted and unusually contested.