At an event today, BoE MPC member Catherine Mann highlighted the ongoing challenges with services inflation, stating that it still has “a long way to go” before it reaches the target-consistent level. Despite cooling to the lowest point in over two years, Mann emphasized that services inflation needs to fall to around 3% to align with BoE’s 2% inflation target.
She cautioned that structural persistence in wage-price dynamics could delay rate cuts, noting, “If you have structural persistence in the relationship between wages and price formation, it’s premature to start cutting until you purge those behaviors.”
Additionally, Mann warned that interest rates are likely to settle higher than pre-pandemic levels due to persistent inflationary pressures driven by supply shocks and labor market frictions. She added that there is likely to be “a lot more inflation” moving forward.
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