Curtailing interest rates in UK will take time: Bank of England

Businesses will need to show they are keeping a lid on prices before there can be further interest rate cuts, according to the Bank of England interest rate-setter Catherine Mann.

In a warning to retailers and consumer goods companies to resist pushing up prices by more than the increase in their costs, Mann said she was wary of firms looking to rebuild their profit margins after a squeeze in recent years, reports the Guardian.

"I need to see the loss of pricing power, I need to see that firms are starting to be much more moderate in setting their prices," she said.

Mann, a former chief economist at the Organization for Economic Co-operation and Development, was one of two policymakers who voted to hold interest rates at 4.5% at a meeting of the Bank's monetary policy committee last week. A majority of five members voted to cut by a quarter point to 4.25%, while two voted for a steeper half-point reduction.

Mann has said previously she is ready to cut interest rates steeply once the battle against inflation is won.

However, she was concerned that rising levels of goods price inflation was pushing up household expectations of price increases in the months ahead.
She said there was the prospect of lower import prices from the knock-on effect of Donald Trump's tariffs on countries such as China, despite the 90-day truce announced on Monday, which could cause cheaper exports to be diverted to Britain.

"There will be some trade diversion that will lead to moderation of import prices in the UK but there's a lot of margin between the dock and the shelf," she said, adding: "Goods price inflation is actually going up, not down."Trade unions and academic economists accused large firms of using their market power to drive up prices during the pandemic, even when their costs had remained stable or declined.

The term "greedflation" was coined to explain how the price of food and consumer goods continued to rise long after the costs of production had fallen back.

The Bank's chief economist, Huw Pill, said earlier this week that he was concerned about a sea change in the labour market that meant higher wages would persist into 2027.