Catherine Mann says an activist Bank Rate rise remains possible if UK inflation risks fail to ease this year
Catherine Mann, a member of the Bank of England's Monetary Policy Committee (MPC), signalled she was prepared to back a rise in Bank Rate if inflation expectations do not improve, in a speech closely watched by mortgage brokers and lenders bracing for further volatility in fixed-rate pricing.
Mann's remarks, delivered at a fireside chat hosted by Natixis CIB, marked a notable shift from the more dovish tone she struck earlier this year. At the start of 2026, she said moderating price and wage growth had brought her "closer to considering a reduction in Bank Rate". Since the outbreak of the conflict involving Iran, however, she has placed greater weight on the risk of persistent inflation, pushing her towards holding rates for longer – and potentially tightening policy further.
Why does this matter for the mortgage market?
The MPC voted to hold Bank Rate at 3.75% at its June meeting. Mann described this as an "activist hold," a term she used to convey the committee was actively weighing the case for a hike rather than passively maintaining the status quo. That June decision followed months of shifting rhetoric from Mann, who had previously argued the Bank could manage inflation risks from the Middle East conflict without hiking at all, as covered in earlier reporting on the Bank's cautious stance on further rate rises.
Looking ahead, she was explicit a rise had not been ruled out. Mann said an activist move can bring inflation expectations and outcomes toward the 2% target should incoming data fail to show improvement, particularly around household and firm inflation expectations in the second half of the year.
For brokers advising clients on fixed-rate products, the timing is significant. Fixed pricing is driven more by swap rates and lender funding expectations than by Bank Rate alone, as previous reporting on the Bank's June decision to hold rates at 3.75% has noted – a point Mann's own speech reinforced. She pointed to data showing that two-year and five-year fixed-rate mortgages at 75% loan-to-value have already risen by 87 and 73 basis points respectively since the conflict began, a pass-through she linked directly to swap market volatility following the escalation in the Middle East.
A mixed picture beneath the headline numbers
Much of Mann's speech focused on why the headline economic data can mask more complicated underlying trends. She highlighted a growing gap between public and private sector wage growth, noting that while private sector pay growth has eased towards levels consistent with the Bank's target, whole-economy pay has not slowed by the same degree – a wedge she attributed largely to stronger public sector wage settlements and bonus payments.
She also pointed to unevenness in the labour market, with unemployment rising faster in sectors such as accommodation and food services than in professional and technical roles. This uneven picture, she suggested, means the headline unemployment rate may be overstating overall weakness in demand – an argument that supports keeping policy tighter for longer rather than easing.
Energy and fiscal pressures cited as key risks
Mann attributed much of the renewed inflation risk to energy markets, noting infrastructure rebuilding and restocking following disruption to the Strait of Hormuz mean higher energy costs are likely to persist. She also flagged that looser-than-expected fiscal policy has reduced spare capacity in the economy, a point she drew from the Office for Budget Responsibility's Forecast Evaluation Report published in June, which found a persistent gap between government borrowing forecasts and actual outturns.
She further noted household inflation expectations have picked up materially since the conflict began, a pattern she said increases the risk of expectations becoming de-anchored from the Bank's 2% target. Research cited in her speech suggests once expectations drift away from target, policy typically needs to tighten by more to bring them back into line – a dynamic that has previously informed some of the sharpest tightening cycles in recent monetary policy history.
Financial conditions add to the uncertainty
Beyond the inflation and labour market data, Mann said financial market volatility had also increased sharply since the conflict began, particularly in UK-specific risk premia, which she said now sit further from historical norms than at almost any other point in the dataset she reviewed.
She linked this volatility directly to the speed at which swap rate movements have fed through into quoted mortgage rates, arguing the transmission of monetary policy into household borrowing costs has become faster and more asymmetric – rising quickly when rates increase, but easing back only slowly.
What brokers should watch next
Mann said the coming months, particularly wage negotiations expected in 2027 and inflation data through the second half of 2026, would be decisive for her next move. Brokers advising landlords and homeowners on the prospect of one or two Bank of England rate hikes this year may want to factor further rate volatility into client conversations over the coming quarter, particularly for those with fixed-rate deals due to expire.
Whether the MPC ultimately moves in either direction will depend heavily on how inflation expectations evolve – a point Mann returned to repeatedly, describing herself as ready to act if the data turns against the Bank's target.
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