Looking ahead, she was explicit a rise had not been ruled out. Mann said an activist move can bring inflation expectations and outcomes toward the 2% target should incoming data fail to show improvement, particularly around household and firm inflation expectations in the second half of the year.
For brokers advising clients on fixed-rate products, the timing is significant. Fixed pricing is driven more by swap rates and lender funding expectations than by Bank Rate alone, as previous reporting on the Bank’s June decision to hold rates at 3.75% has noted – a point Mann’s own speech reinforced. She pointed to data showing that two-year and five-year fixed-rate mortgages at 75% loan-to-value have already risen by 87 and 73 basis points respectively since the conflict began, a pass-through she linked directly to swap market volatility following the escalation in the Middle East.
A mixed picture beneath the headline numbers
Much of Mann’s speech focused on why the headline economic data can mask more complicated underlying trends. She highlighted a growing gap between public and private sector wage growth, noting that while private sector pay growth has eased towards levels consistent with the Bank’s target, whole-economy pay has not slowed by the same degree – a wedge she attributed largely to stronger public sector wage settlements and bonus payments.
She also pointed to unevenness in the labour market, with unemployment rising faster in sectors such as accommodation and food services than in professional and technical roles. This uneven picture, she suggested, means the headline unemployment rate may be overstating overall weakness in demand – an argument that supports keeping policy tighter for longer rather than easing.
Energy and fiscal pressures cited as key risks
Mann attributed much of the renewed inflation risk to energy markets, noting infrastructure rebuilding and restocking following disruption to the Strait of Hormuz mean higher energy costs are likely to persist. She also flagged that looser-than-expected fiscal policy has reduced spare capacity in the economy, a point she drew from the Office for Budget Responsibility’s Forecast Evaluation Report published in June, which found a persistent gap between government borrowing forecasts and actual outturns.