Catherine Mann voted to hold interest rates steady at the last meeting. But she warns she is ready to raise them if inflation expectations fail to fall. That puts investors on notice for a possible increase later this year.
Mann is a member of the Bank of England's Monetary Policy Committee. She spoke about her thinking ahead of an event called the Natixis CIB Private Debt Forum.
Mann is worried that persistent cost pressures could become embedded in the economy. "Once expectations drift from the 2% target, monetary policy needs to tighten more," Mann said. Mann believes that a proactive rate hike could steer inflation expectations back toward the 2% objective.
Mann will watch three things closely in the second half of 2026: energy prices, company profit margins, and the 2027 round of wage negotiations.
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Even if energy costs moderate, Mann warned that companies might keep prices and wages high to rebuild their profit margins. She said "the temptation will be to maintain the own‑price and wage strategies to partially rebuild margins, which, according to the survey data, have been absorbing the current shock."
Mann also noted that overall demand "may be more resilient than projected by the aggregate numbers."
A Bank of England/Ipsos survey shows that household inflation expectations rose sharply following the start of the Iran war.
Mann was part of the majority who held. She explained her reasoning: "There was more upside risks to inflation compared to downside risks for activity," but "financial markets had tightened considerably." She called it an "activist hold" - a decision to wait but stay ready to act.
Mann's warning highlights the delicate balance within the MPC. The two dissenters who voted for a quarter-point hike argue that lingering inflation pressures justify tighter policy now. With wage negotiations and energy costs looming, the committee remains split. Mann's readiness to raise rates later in 2026 signals that the Bank will not hesitate to act if price expectations drift further from the 2% target.
Mann said she is "confident that if outturns - especially in expectations - are unfavorable to the underlying inflation process, an activist move can bring inflation expectations and outcomes toward the 2% target." She will vote to raise rates later in 2026 if the data she watches shows no improvement.
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