BoE policymaker Catherine Mann cautioned in a speech today that monetary policy must remain restrictive despite signs of weak consumption, arguing that high inflation has scarred UK consumers and continues to suppress spending.
“If the consumption gap was my only concern, reducing the restrictiveness of monetary policy would be appropriate,” she said. “However, in light of elevated inflation and expectations, maintaining restrictiveness for longer would be appropriate.”
Mann said the Bank’s analysis points to two drivers of the consumption gap: first, inflation and consumer scarring, and second, the channels through which monetary policy affects consumption.
The former, she explained, is a legacy of the rapid price surge that eroded purchasing power and altered household behavior. “High inflation itself is behind income uncertainty and weak consumption growth,” she said. “Monetary policy needs to continue to focus on reducing inflation” so households can return to a sustainable spending pattern.
For the second, she emphasized that higher rates have already exerted a material drag on demand, and the tightening effect is already waning. “Monetary policy has indeed loosened,” Mann said, adding that its impact on consumption has peaked.
