Bank of England (BoE) interest rate-setter Catherine Mann said the central bank made errors in how it framed its policy response to the shock from the Middle East war, and that has pushed up borrowing costs in the UK in ways that should be of no comfort to officials.
Mann said yesterday that the rise in market interest rates after the outbreak of the Iran war – which some Monetary Policy Committee members think is helping to bear down on inflation – actually reflected expectations of higher inflation and possibly a ‘monetary policy uncertainty premium.’
She traced this risk premium to what she said were errors in the BoE’s initial response in March to the outbreak of war in Iran. The BoE held interest rates with a message that she said was perceived by investors as ‘wait mode,’ rather than taking necessary action to control inflation.
This view stands at odds with that of Governor Andrew Bailey and others on the MPC, who have said that the rise in market borrowing costs had bought the BoE time to consider whether it needed to raise rates itself.
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