MNI BRIEF: BOE Mann Sees Strong Underlying Inflation Dynamics

Underlying inflation pressures in the UK look pretty strong with inflation expectations elevated and the service sector's contribution to headline inflation increasing, Bank of England Monetary Policy Committee member Catherine Mann warned Thursday.

"The underlying inflation dynamics look pretty robust right now," she said in a presentation at the Alliance Manchester Business School, adding that there was evidence of inflation expectations drifting away from target. She said that preventing that drift in inflation expectations was key to policy setting. In December Mann voted for a 75 basis point hike while the majority backed a 50 bps increase.

Mann also noted that market expectations for rate increases has moderated with the peak now around 4.6% compared to over 5% at the time of the December meeting, noting that that meant the MPC had got its message across that previous market rate expectations had been too aggressive, although more tightening may well still be needed.