The Bank of England (BoE) building is reflected in a sign, after the BoE became the first major world's central bank to raise rates since the coronavirus disease (COVID-19) pandemic, London, Britain, December 16, 2021.
The Bank of England (BoE) building is reflected in a sign, after the BoE became the first major world's central bank to raise rates since the coronavirus disease (COVID-19) pandemic, London, Britain, December 16, 2021. Reuters / TOBY MELVILLE

Bank of England policymaker Catherine Mann said she voted for a half percentage point rise in interest rates this month because she saw little sign that public's price expectations were easing, which risked causing inflation to stay too high.

Mann was one of four Monetary Policy Committee (MPC) members to vote to raise interest rates to 0.75% from 0.25% this month, rather than the increase to 0.5% backed by the majority of the committee.

"To me, the data was still showing very robust expectations and I thought it was important to dampen those expectations using a 50 basis point increase," she said in an online video discussion with Britain's Society of Professional Economists.

"There was very little in the data that showed any diminution of expected wage increases, expected price increases or for that matter in financial markets ... other than in gilts," she added.

British inflation rose to 5.5% in January, its highest in nearly 30 years, and Mann said all MPC members agreed that was "way, way above our objectives".

But policymakers differed on the extent to which Britain's economy had recovered from the COVID-19 pandemic and whether there was likely to be lasting damage to the job market in the form of lower employment or participation rates, she said.

"I think it is pretty dangerous to talk about permanent changes to labour force participation at this stage," she said.

Official data shows a drop in the proportion of older people in work or looking for a job compared with before the pandemic, and around half a million fewer people in employment overall.

Some of that drop probably also reflects European Union nationals who left Britain after Brexit or during the pandemic, either temporarily or permanently.

Mann said central bankers globally had been blindsided by the pace at which energy prices had risen, partly due to geopolitical factors which they could not predict.

If 2022's inflation dynamics mirrored those of last year, inflation would overshoot the BoE's latest forecasts, which do not see inflation returning to its 2% target until early 2024, she added.

The BoE also needed to keep an eye on policy tightening by the U.S. Federal Reserve and potentially the European Central Bank. While higher rates abroad would tighten British financial conditions, they could also weaken sterling and push up inflation if the BoE lagged behind the curve, she said.

Financial markets currently expect the BoE to raise rates to 0.75% in March and to 1.75% by the end of 2022, with relatively little change despite Russia's invasion of Ukraine.