Yahoo Finance Red Sea crisis ‘risks forcing Bank of England to rethink rate cut plans’
Attacks on cargo ships in the Red Sea risk forcing the Bank of England to raise interest rates, a leading policymaker has warned.
Catherine Mann, who has repeatedly voted for further rate rises, said pressure from inflated shipping and insurance costs could reignite the cost of living crisis and force Threadneedle Street to act.
She said: “I worry that such an upward inflation shock coming on the heels of the recent high inflation environment will be more swiftly incorporated into firms’ costs and prices, exacerbating upside momentum.”
A further warning was also made about relying on falling energy prices to keep pushing down inflation, particularly as other price pressures remain.
Ms Mann added: “Against a backdrop of sluggish supply growth and possible upside shocks, I see risks of continued inflation momentum and embedded persistence. Inflation is the most pernicious of taxes, affecting all households, and those at lower incomes most severely.”
She said it is “prudent to vote for another increase in Bank Rate” although she was recently outnumbered by a majority who voted to hold rates at 5.25pc.
Her comments came as the boss of shipping giant Maersk warned that the Red Sea crisis could last all year.
It has now been two months since Iran-backed Houthi rebels first ramped up drone and missile attacks on commercial vessels off the coast of Yemen.
The disruptions have caused hundreds of ships to reroute around the Cape of Good Hope, adding two weeks to delivery times and nearly tripling freight rates.
Speaking to CNBC, Maersk chief executive Vincent Clerc said: “We have very little visibility as to whether this is a situation that will resolve in a matter of weeks or months, or whether this is something that is going to be with us for the full year.”
For 2024, Maersk has forecast its earnings before tax, depreciation and amortisation to range between $1bn and $6bn.
This will be a major drop compared to the $9.6bn recorded last year.
At the same time, retail sales in the UK fell in January for the fourth consecutive month, according to high street data from BDO.
Online sales rose 3.2pc last month but in-store purchases fell 4.2pc, with homeware particularly struggling.
Sophie Michael, head of retail and wholesale at BDO, said shoppers chose to stay at home and save money in the cold weather and storms, which is bad news for embattled retailers.
“This month was pivotal for recouping losses retailers suffered in the run-up to Christmas, but the absence of a substantial recovery will deepen the gloomy outlook,” she said.
