Bank of England hawk urges ‘front loading’ interest rate rises

A Bank of England policymaker has called for faster interest rate rises as a survey suggested businesses are losing faith in Threadneedle Street's ability to get inflation under control. 

Catherine Mann said the Monetary Policy Committee (MPC) should “front load” hikes to combat inflation, even if that forces Threadneedle Street to later reverse course.

The former Citi economist, who has unsuccessfully backed half-point increases three times this year, said: “I think history will be kind if there is a future policy reversal.”

Expectations for inflation, wages and output prices have all risen, according to a fresh survey by the Bank.

The Decision Maker Panel – a survey of chief financial officers from small, medium and large UK businesses – showed firms expect output prices to rise by 6.3pc and wages by 5.1pc over the coming year, reinforcing concerns that inflation, which is currently at 9.1pc, is becoming embedded.

Businesses fear consumer price inflation will stand at 7.4pc in June next year, and still be double the Bank’s 2pc target in three years’ time.

Though the MPC has been steadily increasing rates since December in an effort to curb inflation, which is at a 40-year high, several members of the nine-person panel have called for it to move faster.

Markets expect officials to narrowly opt for another 0.25 percentage point rate increase at its next meeting in August, before making a half-point increase in October.

In a speech last month, Ms Mann suggested faster hikes could support sterling, which would then reduce inflation by making exports cheaper.

Speaking on Thursday, she reiterated the Bank should not target the currency, but added the MPC must have a “heightened awareness of the role of the currency, particularly in today's climate of very high inflation rates”.

She rebuffed suggestions that the Bank made errors in its communications to markets, saying officials were operating in an environment of “high volatility [and] great uncertainty”.

“[It’s] a very challenging time to assess and to communicate,” she said.