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Companies will have difficulty increasing prices this year, since consumers are affected by job losses and spending is softened, according to a set of rates from the Bank of England that argues that the central bank should have reduced the rates of Interest more aggressively last week.
Catherine Mann said she voted for a half -point Jumbo cut last week due to a job market weakening and decelerating the demand of consumers that is cushioning the price power of companies and, therefore, inflationary pressures.
Mann had previously been the most aggressive BOE policy formulator and opposed last year’s rates reductions due to persistent inflation risks.
“The demand conditions are much weaker than the case has been, and I have changed my mind about that,” Mann said in an interview with the Financial Times.
“I can see that prices are very close to (2 percent) with the target (levels) in the next year,” he added, warning that the data point to a “non -linear” fall in employment.
Mann, an external member of the BOE monetary policy committee, distanced himself from the “gradual” approach of the central bank reductions, saying that a half -point movement had been needed to “reduce noise” and make it clear to Merchants the need for easier financial conditions.
“To the extent that we can communicate which we believe are the appropriate financial conditions for the United Kingdom economy, a broader movement is a superior communication device, in my opinion,” said Mann.
The BOE announced on Thursday a reduction of cuarter rates to 4.5 percent, but Mann and his colleague Swati Dhingra requested a larger point cut.
Huw Pill, the main economist of the BOE, distanced himself on Friday from that approach, saying that he did not “rush” considerable rates reductions.
While Dhingra has been looking for a faster flexibility for some time than most of the MPC, Mann has been until recently at the opposite end of the spectrum.
In 2023 he asked that the rates rise to 5.5 percent, a quarter point above the highest point after the increase in inflation.
He opposed MPC’s majority decision to cut the 5 percent key rate in August and was the only opponent of the November movement to reduce it to 4.75 percent.
Despite his posture change, Mann warned that his vote last week reflected his desire for a unique step change instead of a long -term succession of continuous rate reductions.
The BOE awaits a collection in consumer price inflation at 3.7 percent in the second half of this year, driven by factors that include higher prices.
Mann said that the Central Bank needed to ensure that this increase did not result in companies that accept to accept greater salary demands, which could feed inflation.
“I have to make sure that these second round effects do not arise. And I will need more data to make that trial, ”said Mann.
However, Mann said he expects a consumer from the United Kingdom to weaken “lack of price fixing power.”
The soft demand conditions are “starting to bite” and undermine the capacity of companies to go through cost increases in areas that include catering, hospitality and vacation, he said.
Meanwhile, companies whose labor costs would probably be driven by the government’s decision to increase the minimum wage and employer insurance contributions showed “dramatically changed employment intentions,” he said.
This pointed out “nonlinear adjustments in labor demand,” he said. “Workers may want those salary increases, but companies will not be able to pay, because they cannot pass it.”
Mann added: “If there is a non -linear adjustment in employment, that causes less demand because less people are used. And then that leads to moderating the power setting power of companies. “
The weakest demand was a reflection of continuous caution among consumers despite the increase in real income, and inflation adjusted wages increased 2.5 percent in the period from September to November last year.
Last year, Mann said he had been suggesting that high savings were “dry dust” that could feed a stronger consumption, but this did not materialize.
A monthly survey conducted by KPMG and the Confederation of Recruitment and Employment on Monday pointed out the most widespread weakening of personnel demand since August 2020, when the United Kingdom dealt with the Covid pandemic.
