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Don’t be ‘seduced’ into thinking battle against inflation is over, warns Bank of England policymaker
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Don’t be ‘seduced’ into thinking battle against inflation is over, warns Bank of England policymaker
Catherine Mann fears wage pressures in the economy could take years to dissipate, as service sector firms and goods producers ‘ratchet’ prices up
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First increase of year forecast in setback for Bank of England
First increase of year forecast in setback for Bank of England
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Inequality  
Tories left ‘legacy of structural racism’ in UK jobs market, says TUC
Infrastructure  
Number of UK drivers concerned with state of local roads hits record levels
Economics  
UK ministers warned to prepare for tough decisions on spending
Australia  
Payback time for consumers as retailers focus on discounts amid cost-of-living battle
Exclusive  
Majority in UK want new tax on makers of ultra-processed and junk food
Pret a Manger  
Chain deploys body-worn cameras for some staff
Rail  
Minister warns CrossCountry about ‘dire’ service amid reduced timetable
Today's agenda
One of the Bank of England’s hawkish policymakers has warned that the UK should not be “seduced” by the recent fall in inflation, given underlying price pressures in the economy remain strong.

Catherine Mann, one of four policymakers who opposed this month’s cut in UK interest rates, argues that services inflation remains too high for comfort, and that UK wages are rising faster than the Bank’s models would predict.

Speaking to the Economics Show with Soumaya Keynes podcast, released this morning, Mann explained that while goods inflation has fallen, services prices were still rising at over 5% per year – which, she feels, is not compatible with keeping headline inflation sustainably at 2%.

Mann fears there is an “upward ratchet” effect within the services sector, as services prices rarely fall. Part of that process is “the desire to maintain certain wage relationships”, she says – once the lowest-paid workers at a company get a pay rise, those above them push for one too.

Mann explains: "There was a lot of new wage agreements in April this year. There will be wage negotiations next year, which will be in relationship to the negotiations that just happened. So some people at the bottom got quite a bit of an increase, rightfully so.

"But the ones above them didn’t, which means next year they will, because it’s important to keep relative wages within a hierarchical structure, kind of in relationship to each other."

In April the national living wage rose to £11.44 an hour, an increase of almost 10%.Good producers can also deploy the ratchet technique to push up prices, Mann points out – which may take a long time to “erode away”.

She says: "Firms look at their competitors and their competitors raise their prices a little bit. Maybe they’re more efficient. They raise their prices a little bit, and their competitors raise it too. We do not see that behaviour on the downside."

Mann also anticipates upside risks to goods inflation from higher shipping and transportation and all the issues in the Middle East, while wages keep rising faster than the Bank’s models would predict.

Mann explained: “It takes multiple years for wages to catch up to all these desired real wages that workers want to have. And when it takes a long time, that means going forward, it’s going to take a long time for wage deceleration to move us into a position where services [inflation] will decelerate.'

On a scale where one is ultra-dovish, and 10 is ultra-hawkish, Mann put herself as a 7 – down from a 10 in the days when she was voting to increase interest rates above their recent 16-year high.

She, and three other members of the monetary policy committee, were outvoted by the other five members of the MPC at the start of this month, when UK interest rates were cut to 5% from 5.25%.

Inflation data due on Wednesday is expected to show a rise in UK CPI inflation, from 2% to 2.3%.

However, the latest labour force statistics due tomorrow morning are tipped to show a slowdown in wage growth.

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