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Bank of England's Mann says it is too soon to stop raising rates

Economist and member of the Bank Of England’s Monetary Policy Committee Catherine Mann poses for a photograph ahead of a speech at Manchester Business School in Manchester

By William Schomberg and David Milliken

LONDON (Reuters) -Bank of England interest rate-setter Catherine Mann said on Thursday that it was too soon to say the risks posed by the surge in inflation last year had eased and that the central bank should continue to raise borrowing costs.

"I believe that more tightening is needed, and caution that a pivot is not imminent," Mann said in a speech delivered to the Resolution Foundation think-tank in London.

"In my view, a preponderance of turning points is not yet in the data," she added, referring to a lack of evidence of big falls in inflation expectations and underlying price pressures which she wants to see before ending rate rises.

The BoE raised interest rates to 4% earlier this month but signalled it was close to ending a run of increases which began in December 2021.

Mann voted for the 50-basis-point rate rise in line with the majority on the nine-member MPC, though in some previous months she has favoured bigger rate rises than the consensus.

She has previously argued in favour of raising borrowing costs sharply in the face of an inflation rate that remains above 10%, even though the BoE has forecast that it will fall sharply this year.

The former chief economist at the Organisation for Economic Co-operation and Development and U.S. bank Citi said the run of increases in borrowing costs so far undertaken by the BoE had been historically aggressive, but perhaps insufficiently so, given the multiple shocks that have hit Britain's economy.

"We have an inflation remit, and we will achieve it one way or another. Failing to do enough now risks the worst of both worlds," she said, warning of the possibility that rates have to stay higher for longer to get inflation back down to 2%.

Two other members of the Monetary Policy Committee - Swati Dhingra and Silvana Tenreyro - voted to pause the rate hikes at this month's meeting.

Investors are expecting a quarter-of-a-percentage-point rate hike - which would represent a slowdown in the pace of tightening by the BoE - at the March meeting of the MPC, taking Bank Rate to 4.25%, its highest since October 2008.

Mann said she was concerned that the sharp rise in energy costs in late 2021 and 2022 had made businesses and households more influenced by past inflation - rather than future weak prospects for growth and the central bank's commitment to lower inflation - when making their own decisions on wages and prices.

This in turn could make inflation stickier than before, and delay the transmission of rate rises to the real economy, as well as increasing the total amount of tightening and downward pressure on output needed to return inflation to target.

Mann also said that she believed that in normal times, interest rate changes took their full effect faster than the 18-24 months which economists have previously estimated.

(Reporting by William Schomberg and David Milliken; Editing by Simon Cameron-Moore)