Omicron Variant Risks Denting U.K. Demand, Warns BOE’s Mann
The emergence of the Omicron variant may hurt demand and confidence in the U.K., and policy makers need more information about the strain, and a host of other data, before deciding whether to act, Bank of England policy maker Catherine Mann said.
Still, Mann, who voted with the majority to keep interest rates on hold at this month’s meeting, said she was paying attention to a number of variables including the outlook for the new variant of Covid-19, business’ pricing strategy and supply-chain issues as she considers her policy stance. Still, she also cautioned that the impact of the new strain may boost inflation by delaying a return to spending on services.
“There’s still a lot of information to come in, especially with regard to omicron, so it is premature to even talk about timing, much less how much,” when thinking about rate hikes, Mann told a web audience at an event hosted by Barclays Plc.
Financial markets are becoming more concerned that the omicron will prevent the BOE from hiking interest rates in December, and have cut the odds of such a move to around 50%, from a near certainty earlier this month.
Speaking at an event hosted by Barclays, Mann also said:
- U.K. economic growth in the BOE’s forecasts remains below trend throughout the forecast horizon when the figures take into account market interest rates, and policy makers are concerned about that sort of “scarring”
- Asia’s zero-Covid strategy risks further damage to supply chains, which will result in upward pressure on inflation
- Labor markets are “very tight,” and policy makers are concerned that higher wage demands may feed through to a more general increase in inflation
- Inflation is likely to moderate in the months ahead, and applying the full futures curve to estimates for energy prices would shave 50 basis points off the figure in the coming years
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