From strongly supporting a significant interest rate cut to holding steady, Bank of England official Mann explains the logic behind the "flip-flop"

According to the Zhitong Finance APP, Catherine Mann, a Bank of England policymaker who previously supported significant interest rate cuts, advocated for a pause in rate cuts at last week's policy meeting, surprising Bank of England officials. In response, Catherine Mann explained on Wednesday that her change in stance was due to significant market volatility leading to lower borrowing costs, effectively acting as a loosening of financial conditions.

For most of last year, Catherine Mann was considered the most hawkish policymaker at the Bank of England by economists. However, in February of this year, she suddenly supported a substantial rate cut of 50 basis points. But subsequently, she voted to maintain interest rates at the policy meetings in March and May.

As the trade war initiated by U.S. President Trump cast a shadow over the global economic outlook, the market increased its bets that the Bank of England would accelerate its rate cuts. Catherine Mann pointed to changes in market pricing, resilient employment data, and rising commodity inflation. She noted that the market expected a rate cut of 75 basis points, while she supported a cut of 50 basis points.

Catherine Mann stated that during this period of significant market volatility, small policy adjustments by the Bank of England "can easily be drowned out." She also mentioned that she would not vote for further easing policies until she saw a further weakening of corporate pricing power. She expressed concerns that companies might attempt to rebuild profit margins that have been squeezed in recent years, saying, "I need to see a weakening of corporate pricing power and a more restrained approach to pricing by companies. Import prices in the UK will moderate due to trade shifts, but there remains a significant profit margin between the dock and the shelf."

Catherine Mann pointed out that although the Labour government recently introduced fiscal stimulus measures, their effects have been offset by the extreme caution of households. She stated, "I was very optimistic about that Keynesian-style fiscal stimulus approach—but what we have observed is that these stimuli have basically been saved. People are now more concerned about fluctuations in wage income."

High Wage Growth May Keep Bank of England Cautious

The Bank of England is closely monitoring inflationary pressures in the UK labor market while considering whether to accelerate rate cuts to protect the economy from the impacts of Trump's policies. The Bank of England lowered rates by 25 basis points as expected last week, bringing the rate down to 4.25%. However, there was a three-way split in the Monetary Policy Committee (MPC): five members supported a 25 basis point cut, two members supported a larger 50 basis point cut, while another two members advocated for maintaining the current rate.

On Monday, policymakers Clare Lombardelli and Megan Greene pointed out that there are inflation risks in the labor market, with wage growth still too high compared to the Bank of England's 2% inflation target. However, another policymaker, Alan Taylor, stated that the "quite dangerous" trade situation was one of the reasons he voted for a 50 basis point cut.

Data showed that the average wage in the UK, excluding bonuses, grew by 5.6% year-on-year in March—an indicator tracked by the Bank of England to measure domestic inflationary pressures—falling short of economists' expectations of 5.7% and the previous value of 5.9%, marking the lowest growth rate in three months since November of last year Jack Kennedy, a senior economist at the global recruitment platform Indeed, stated that the Bank of England may continue to be vigilant about the risks posed by the still relatively high wage growth in the UK. He said, "If wage growth pressures show a greater and more sustained easing, it could open the door for faster interest rate cuts, but the voting divergence in May by the Monetary Policy Committee highlights a cautious attitude towards persistent inflationary pressures."