Markets are pricing in “too many” interest rate cuts this year following the Bank of England’s latest decision, a member of the Monetary Policy Committee (MPC) said today.
Following last week’s decision, traders think that the Bank will cut interest rates three times this year, with the first cut likely to come in June.
In an interview with Bloomberg TV, Catherine Mann said markets were too optimistic. “They’re pricing in too many cuts — that would be my personal view — and so in some sense, I don’t have to cut because the market already is,” she said.
Mann has long been one of the most hawkish members on the MPC, persistently warning about the dangers of stubborn inflation.
While she voted to hold rates last week, she had previously been calling for further interest rate hikes to ensure inflation was decisively tamed. She was one of only two members of the nine-strong MPC to back a hike in February.
Mann said changing dynamics in the labour market were crucial for understanding why she changed her vote, but still argued more evidence was needed before she would consider cutting rates.
Catherine Mann
“Wage dynamics in the UK are stronger and more persistent than the wage dynamics in either the United States or the euro area,” she said.
“Underlying services dynamics are also stickier more persistent than either the US or the euro area. So on that basis, it’s hard to argue that the Bank of England would be ahead of the other two regions particularly the United States,” she continued.
The Bank voted to leave interest rates on hold for the fifth consecutive meeting last week. Markets interpreted the decision as dovish because Mann and Jonathan Haskel, the two hawkish outliers, ceased their calls for further rate hikes.
Comments from Andrew Bailey following the decision suggest that he is more comfortable with cutting rates than Mann. “What we are seeing is encouraging to me,” he said.