BoE's Mann Says Loosening Labor Market Will Restrain Price & Wage Growth

(RTTNews) - A further loosening of the UK labor market will restrain the growth in wages and prevent second-round effects from setting in, even if the near-term inflation expectations increase, Bank of England policymaker Catherine Mann said Tuesday.

In a speech, the monetary policy committee member said the current and likely continued weak demand conditions will lead to a further loosening of the labor market.

"Even if near-term inflation expectations firm on the back of the inflation hump, these factors likely will restrain pass-through to wages and prevent second-round effects from setting in," Mann added.

At the February MPC meeting, Mann along with Swati Dhingra had called for a bigger rate cut of half percentage point. The bank had reduced the interest rate by 25 basis points to 4.50 percent, which was the lowest since June 2023.

The decision was taken against a backdrop of surprisingly weak economic activity in the second half of 2024 amid a modest further loosening in the labor market, Mann noted. At the same time, inflation was projected to rise to 3.7 percent in the third quarter before returning to the 2 percent target only at the end of 2027.

"In the near term especially, weaker activity combined with inflation expected to rise is a challenging, 'trade-off inducing' combination for a central bank," she said.