Bank of England policymaker Catherine Mann warned that future interest rate hikes could trigger larger-than-intended tightening in UK financial conditions because of growing fragility in Britain’s gilt market. Speaking on Wednesday, Mann said the increasing role of hedge funds and overseas investors has made the market more sensitive to sudden shifts in sentiment, particularly during periods of political and economic uncertainty.
“Given fragilities and economic uncertainties in the domestic and global financial markets, investor sentiment can shift abruptly,” Mann said. She cautioned that “a tighter monetary policy stance could trigger volatility as the new actors unwind positions,” potentially tightening financial conditions far beyond what the BoE intends. Her remarks came after UK government bond yields surged earlier this week amid mounting political pressure on Prime Minister Keir Starmer, with 30-year gilt yields briefly hitting their highest level since 1998.
Importantly, Mann also signaled that broader market conditions are now becoming a direct factor in her policy thinking. In a later Q&A session, she said: “With regard to the 10-year yield and exchange rates, I take the financial landscape as a key factor in my decision-making.”
The comments are notable because Mann is traditionally viewed as one of the MPC’s most hawkish members. Her remarks suggest that even policymakers are concerned about inflation risks tied to higher energy prices and the Strait of Hormuz disruption, they are becoming wary that aggressive tightening could destabilize UK bond markets and Sterling simultaneously.
