According to Reuters:
Inflation running above the Bank of England's 2% target appears to have become embedded in the British economy and risks getting further entrenched in wage negotiations early next year, BoE policymaker Catherine Mann said on Tuesday.
Mann said last week that the BoE had erred in March, just after the start of the Iran war, by letting investors think it was happy to take a wait-and-see approach to raising rates. She voted in July and September for a quarter-point hike.
Let me put my cards face up on the table. I have little regard for Catherine Mann, her ability, or her understanding of the economy in which we live, or of what our economic priorities should be, and so everything that I say that follows should be read in that light. I believe in being fair.
All that being said, though, what Catherine Mann does not understand is that if inflation is being embedded in our economy, rather than being the transitory shock which should follow supply chain shocks and other consequent crises, that is for one of two reasons.
One of those is that these shocks are coming thick and fast, and there is nothing that she, as a member of the Bank of England Monetary Policy Committee, can do to stop that happening. Covid reopening, war in Ukraine, climate change, war in the Gulf, El Niño, drought, forest fires and all the other consequent crises that we are presently facing in the world economy are, without exception, beyond the control of the Bank of England and are entirely, and always will be, totally unaffected as to their impact by any interest rate that she and her colleagues choose to set.
The second reason is that, in response to the crises we have had to date, she and her colleagues have chosen to embed into the UK economy and our financial system interest rate expectations that far exceed what the current economy requires or can sustain, but she would like to increase them.
We are already in the economic doldrums. There is a cost-of-living crisis. Unemployment is rising. Insecurity, and, as importantly, the fear of it, is growing, and a very large part of that is because of the increase in the costs that the Bank of England directly influences in the UK economy, including those for mortgages, rents, other loans, car lease facilities and a great deal more. If the Bank of England chooses to respond to an inflation crisis by raising the cost of money, of course they increase the likelihood that the inflation they are supposed to reduce will instead both increase and become embedded, because that is precisely what is predictable based on the process they follow.
Despite that, Catherine Mann's prescription for dealing with this crisis is to increase the price of money again. What is more, I suspect that once she has succeeded in that goal, she will demand that the process be repeated. It would seem that her policy is to maintain the beatings until everyone possible is suffering, except, of course, those who must inherently gain from this process, who are the wealthy.
So what can we do about this stupidity, as I can best describe it? There are, of course, a number of things we can do.
Firstly, the Chancellor can declare that we are facing an economic emergency and therefore trigger the provisions of section 19 of the Bank of England Act 1998. The Bank can be overruled.
Secondly, the Chancellor could appoint people who understand that raising interest rates can itself be inflationary to the Bank of England Monetary Policy Committee, to give it some necessary insight into the process it is engaged in.
But thirdly, and most importantly, we could signal the beginning of the end of the neoliberal era by bringing Bank of England independence to a close. This has always represented a political gesture to wealth, financial markets, and the interests of the City of London, rather than anything that might serve the interests of the people of the UK.
Seeking to control an economy whose sole purpose is to improve the well-being of the people within it through the use of monetary policy, and so interest rates, was always going to end in tears because the two goals are necessarily, and almost always, in conflict with each other. We can now see governments, both here in the UK and elsewhere, desperate to meet the needs of their populations, who are rightly angry with the consequences of the neoliberal era. As a result, those governments need to create jobs, increase wages, improve well-being, and deliver for ordinary people through the use of fiscal policy. However, at the same time, this goal is being deliberately undermined by central banks that seek to do the exact opposite, most especially by increasing unemployment and reducing business investment whilst punishing households for having the temerity to borrow to do something so frivolous as to buy a home.
What then is the solution to the problem that Catherine Mann represents? It is not, ultimately, to remove Catherine Mann from office. It is to remove her office itself.
In the new era that we are facing, there is no room for bankers to run the world. They are bringing it to its knees. We cannot solve the problems that they have created by tinkering at the edges of the issues. The change has to be systemic.
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“Stop the Bonkers Bankers!”
I 100% agree. The problem is that banksters terrify the know-nothing politicos (think of Callaghan 1960s & healey 1970s) . Same is true now – the Wezzie village knows nothing (& learns nothing) and because of that the “factory default” is to listen to the “wise” words of the banksters/FinMin types – who all sing from the same bankster-written song sheet.
A PS. This web site (below) is quite good for seeing bond prices. If you would like a laugh – take a look at UK and EU member state rates, then hop over to China. Most amusing – UK circa 6%, China 2% (for 30 year bonds). Mann’s starter for 10, if Chinese companies can get funding @ around 2% and UK companies @ 6% – this suggests that UK companies are at an immediate disadvantage – is this a good thing Mann???
Doubtless Mann has some weird logic to explain why this is good.
https://www.tradingview.com/markets/bonds/prices-uk/
Thank you
Oh yes, please. (Can we join the French on the streets? Maybe not, as our circumstances are slightly different.) But a problem is that we have a Chancellor of the Exchequer who needs either to be removed or to be told what to do. Has Burnham got the guts to do that?
If you listen to ‘Women’s Hour’ on Radio 4, you’d never think that women like Catherine Mann exist! Neo-liberalism makes anyone who embraces it completely blind.
Thank you Richard.
So, its in Section 19 of the 1998 Act is it that stops these mere political appointees and replaces them with democratically elected decisions makers is it? It’s about time they earned their crust, never mind hiding behind this anti-democratic bullshit.
Pens at the ready people!
Richard,
Your argument fails on two counts.
1. Rate rises do not cause the inflation they target
You give only two explanations for embedded inflation: external shocks, or the Bank itself. You ignore second-round effects, where shocks feed into wage and price expectations. That is exactly Mann’s concern. Frequent shocks strengthen her case, because each one makes the next price rise seem normal.
Your cost-channel claim is second-order. The CPI target excludes mortgage interest entirely, and Romer and Romer (2004) found that contractionary policy reliably lowers inflation. The natural experiments are brutal for your position. Turkey ran your theory as policy: it cut rates while inflation hit about 85% in 2022, then reversed course and hiked to 50%. Britain’s 1970s, with negative real rates and politically directed policy, peaked at 26.9% RPI inflation. Most recently, UK Bank Rate rose to 5.25% and CPI fell from 11.1% to 2.0%. Meanwhile, the fiscal expansion you prescribe during a supply shock would add demand to an economy that has just lost capacity, which means more inflation.
2. Ending independence would hurt the people you defend
Inflation is regressive: ONS data showed poorer households facing higher inflation in 2022–23. Cheap money was the real gift to wealth. The Bank’s own 2012 analysis found that QE’s gains flowed mainly to the top 5% of households. Alesina and Summers found that independent central banks deliver lower inflation with no output cost. The 2022 mini-budget showed what lost credibility costs: gilt yields spiked and mortgage products were pulled en masse.
Nor do “bankers run the world.” The Chancellor sets the target, appoints external MPC members, and holds section 19 override powers.
The rent channel and weak growth are fair grounds to question Mann’s vote. They are no case for abolishing her office
I think you are arguing against a claim I did not make.
I have never said that higher interest rates cannot reduce inflation. They can, by suppressing demand, investment and employment, and by weakening the bargaining position of labour. That is precisely my objection to their use.
Your second point misses my argument.
I am not suggesting that inflation does not harm people on low incomes. Of course it does. The question is why that justifies handing the power to decide how inflation should be tackled to unelected central bankers.
Bank of England independence does not depoliticise monetary policy. It delegates an intensely political decision. Raising interest rates deliberately redistributes income towards those with financial wealth and away from borrowers. It increases mortgage costs, feeds into rents, increases business financing costs, discourages investment and can increase unemployment. Those are distributional choices.
Nor does the fact that the Chancellor sets the inflation target alter this. The Bank decides how to pursue that target, and its chosen instrument can impose enormous costs on particular groups without those making the decisions being democratically accountable for them.
And citing QE as evidence that “cheap money” benefited the wealthy actually reinforces my point. QE inflated asset prices because of the way the Bank chose to conduct monetary policy. That was another profoundly distributional policy undertaken by an independent central bank.
My objection to Bank independence is therefore democratic as well as economic. Decisions about who should bear the cost of managing inflation should be made by an elected government that can be held accountable for them.
Delegating those decisions to unelected officials does not remove politics. It removes democratic accountability from politics.
Well said Richard.
Herol Graham exists in a world of high level, abstract ‘performance metrics’ which do not really convey the suffering caused by their effects.
As for his/her defence of Mann, saying that Mann judiciously noted the poor redistribution effects of such polices does not excuse her from criticism. If Mann has ‘noticed something’, then act upon it I say. And how strange that a member of the MPC would say that ‘independent’ central banks perform best – would they not? The meetings, the dinners afterwards and awards and honours, ‘being someone important’ – ooh, hard to resist.
And am I right in thinking tax policy has a role here? If the benefits of interest rate rises accrue to the top of financial society, then tax them accordingly and recover it to distribute down or make them think its not worth it.
As you suggest, we need to reconnect interest rate setting to democracy. As noted here many times, inflation goes up and down and a democracy should react on everyone’s behalf accordingly. This ‘perfect Neo-liberal world’ where crocodile tears are shed for inflationary effects on the poor but interest rates STILL rise is a confected drama well past it sell-buy date.
Much to agree with
Herol “Bomber” Graham is a former professional middleweight boxer widely regarded as one of the best British fighters of the 1980’s.
Tragically after his retirement from the ring Bomber experienced significant mental health problems resulting in detention under the Mental Health Act.
So not only an unoriginal troll name, an inappropriately offensive use of a sporting hero’s one too
Thank you.
Badenoch today telling the Tory conference that the country is running out of money.
Will anyone in the mainstream media question the stupidity of this notion?
And she wants to be Prime Minister. Dear oh dear, how low we have fallen.
Very low.
I genuinely think that their lack of understanding of interest rates is deliberate. Once is hapenstance; twice is enemy action, as the saying goes. They can’t be mistaken this consistently. I can’t get out of my head something that I read about the post-2008 crash bailouts. The thinking was that the wealthy and their businesses can’t be rescued if allowed to lose their money or collapse; once they are gone, they are gone. I didn’t understand the reasoning then; I don’t understand it now, but I feel like our entire economic system is built around protecting people who already have money. If the Establishment wants to foster potentially violent and surely disastrous revolution, they couldn’t choose any better than the route we are on.
“I feel like our entire economic system is built around protecting people who already have money.” Correct.
Graham writes:
” You ignore second-round effects, where shocks feed into wage and price expectations.”
Clive Parry covers that here:
https://www.taxresearch.org.uk/Blog/2026/09/29/the-irrationality-of-central-banks/comment-page-1/#comment-1094835
in a discussion on Australia.
It seems to me that BoE interest rate rises themselves cause 2nd round inflationary effects of mortgage and rent rises along with 2nd round retail price increases caused by business borrowing and rental costs going up.
But a government that is freed from artificially imposed fictional fiscal rules, can plan, regulate, spend and tax strategically to deal with such things. But any attempts to move in that direction are drowned out by hysterical screams from Tufton St. and the City, or more sinister bullying threats from across the pond.
What we DO know after 46 years of neoliberal hegemony, is that the current increasingly desperate neoliberal mantras about money are lies, and we are dying out here, literally, and what we are definitely NOT dying of, is low BoE interest rates or profligate government spending.
We’ve listened to the central bankers for too long. Decades too long. They have had plenty of power and they have failed us. Anyone suggesting an alternative has been squashed like a fly. Enough. It’s over.
You are right. Thank you.
Look what has just appeared in the Guardian Letters this evening
https://www.theguardian.com/business/2026/oct/07/beware-rightwing-economic-myths-such-as-maxing-out-the-nations-credit-card
Vince Gomez in particular
Very good.
The First Edition’ newsletter in this morning’s Guardian asks’
Is it time to end the Bank of England’s independence?
There are then three answers from economists including Costas Lapavitsas who has a wonderful comment ‘ Money is a common good’. James Meadway supports your point that exogenous inflation can’t be controlled by interest rate rises and who recommends not allowing the BoE to raise rates further.Then there’s a tepid comment from Ann Pettifor, but at least the idea is getting traction in mainstream press.
Agreed
Mann wants to reduce the derived demand for labour to reduce workers’ wage bargaining power. In her neoclassical/neoliberal world unemployment – especially of marginalised groups – is always a price worth paying to reduce inflation. Perhaps MPC members should adopt the approach of Kings and Queens before medieval times when they led soldiers into battle. I wonder what decisions we would get from MPC members if they had to become unemployed and live off barely life-sustaining benefits if they recommended an interest rate designed to create unemployment.
Much to agree with.
Human imperfection needs something to cling to. Neoliberalism is a powerful psychological shield for those who are wealthy and powerful and those who aspire to be. It allows them to pursue dominance and wealth accumulation without the burden of guilt. While the raw impulses of greed and exploitation are deeply rooted in human history, I suspect neoliberalism is unique in how effectively it legitimizes and accelerates those forces on a global scale. That’s why it will be hard to dislodge, but also why it will inevitably collapse.
The Reserve Bank of Australia is in sync with your Bank of England, where Australians experience mirrored inflation, wage suppression, rising interest rates caused by corporate shareholder profits but instead being worn by workers and mortgagees, instead of addressing the real culprits, corporate profits including Wall Street/City of London Corp speculation (AI for instance) banking and war profiteering. HENCE CORPORATE MEDIA MANUFACTURE IMMIGRANT SCAPEGOATS TO DIS INFORM & DEFLECT.
Agreed