BoE's Mann: Can't rely on risk premia to do work of policy, need to raise rates

Bank of England (BoE) policymaker Catherine Mann argued on Thursday that they can't rely on risk premia to do the work of monetary policy and added that they need to raise the bank rate, per Reuters.

BoE’s Mann flags need for higher rates despite tighter conditions

FXS Speechtracker assigns this speech a 9.4/10, notably above BoE’s Mann historic average of 8.1/10, signaling a stronger-than-usual policy signal. The insistence that the Bank of England “needs to raise bank rate” and cannot rely on risk premia to substitute for monetary tightening marks a clear hawkish shift, as tighter financial conditions are framed as problematic when driven by higher inflation and policy uncertainty premia rather than deliberate rate hikes.

By highlighting that tighter conditions offer “no comfort” if rooted in inflation risk and uncertainty, the remark underscores a preference for explicit Bank Rate increases over passive market-driven tightening, reinforcing hawkish sentiment for the Pound. The admission that the Bank of England may not have clearly articulated the reaction function to the Middle East shock, and that not publishing a baseline forecast in April likely added to uncertainty, suggests a desire to restore credibility and clarity, which typically supports expectations of more decisive future policy action.

Key takeaways

"Tighter financial conditions are no comfort when they reflect higher inflation risk premium, possibly also monetary policy uncertainty premium."

"BoE may not have clearly articulated its reaction function to Middle East shock in March, not publishing baseline forecast in April likely did not help either."