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\t\tMonetary Policy Committee member Catherine Mann (Photographer: Hollie Adams\/Bloomberg via Getty Images)\t<\/p>\n
Inflation is likely to become \u201cpersistently elevated\u201d unless it is squeezed out with a more restrictive monetary policy than the Bank of England is currently predicting, a top Bank of England official has warned.<\/p>\n
In a hawkish speech delivered<\/a> on Tuesday, Monetary Policy Committee member Catherine Mann said the spectre of further price rises looked \u201cgreater than the judgement incorporated in the baseline forecast\u201d produced by the UK\u2019s central bank in May.<\/p>\n \u201cA more persistent hold on Bank Rate is appropriate right now, to maintain the tight \u2013 but not tighter \u2013 monetary policy stance needed to lean against inflation persistence persisting,\u201d she said at a panel event on the future of central banking in Mexico.<\/p>\n The external MPC member,<\/a> whose \u2018activist\u2019 approach to monetary policy has earned her a reputation as one of the Bank\u2019s most enigmatic rate-setters, also warned that heading to calls for faster rate cuts now risked greater price rises in the future and set off a round of secondary effects.<\/p>\n \u201cBy squeezing out inflation today, you prevent it from persisting in the future,\u201d she said. \u201cIf this policy is not followed, even tighter policy would be required later to remove the resulting higher inflation and rein in the expectations drift.\u201d<\/p>\n Mann\u2019s comments follow a string of recent data suggesting the UK economy could be entering into another bout of inflation, led predominantly by sudden jumps in food inflation. <\/p>\n On Tuesday, the British Retail Consortium said that a \u201csignificant\u201d jump in the cost of staples like eggs and butter had driven food inflation to hit 4.2 per cent in August<\/a>. The industry body\u2019s forecasts show food inflation is likely to hit six per cent before the end of the year, as fears of another winter cost of living squeeze weighs on consumer sentiment.<\/p>\n Mann cited research showing consumer inflation expectations to be especially sensitive to food and shop price rises, meaning there is a greater risk of second-round effects via more upward pressure on wages in the future.<\/p>\n \u201cThe projected inflation hump is higher than in our forecast in May, and together with elevated food prices and inflation expectations, increases the risk of attention threshold effects,\u201d she said, referring to whether recent food price rises will lead to workers demanding pay rises when inflation peaked at over nine per cent.<\/p>\n