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Catherine Mann, who is set to join the Bank of England Monetary Policy Committee in September, believes the current economic recovery is more fragile than headline activity data suggests but she has doubts about the benefits of negative interest and dislikes the idea of tying policy tightening to closing the output gap. Mann's written answers to the Treasury Select Committee were mainly theoretical, stressing that she needed to look more closely at the economic situation from within the Bank but some themes did emerge.
MPC members have talked about closing the output gap post-pandemic before tightening but Mann said "It is difficult to measure potential GDP in the best of times, and in the current environment of both COVID and Brexit the situation is particularly challenging ... (and) research shows that using the output gap as a guide tends to make policy tighten too soon." On negative rates she said that they seem to "raise risk taking, and to reduce the profitability and stability of banks, pension funds, and insurers," entailing that they are not worth the effort put into implementing them.
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