BoE MPC member Catherine Mann said in a speech that while monetary policy taken has been historically aggressive, it’s perhaps “insufficiently so relative to the multiple shocks, the behaviours pushing up inflation, and the initial accommodative starting point”.
“The stage was set for a transmission of monetary policy to financial markets that has been quick, but also has been partially absorbed,” she said. “And… are already incorporating the expected future inflection in monetary stance.
“All this adds up to financial conditions that are now looser than what likely will be needed to moderate the embedding of on-going inflation into the wage- and price-setting paths.”
“This constellation could yield extended persistence of inflation into this year and the next. The resulting long period of time above the 2% target could increase the degree of backward-lookingness, or catch-up behaviour, in the system.”
“Given that the risk of increasingly persistent inflation rises disproportionately with the share of backward-lookingness, I believe that more tightening is needed, and caution that a pivot is not imminent. In my view, a preponderance of turning points (Mann, 2023) is not yet in the data.”
