LONDON (Reuters) -Bank of England interest rate-setter Catherine Mann said on Wednesday that strong demand without corresponding supply-side growth risks creating a “sugar high” for the economy that could end poorly.
“When I think about growth as a central banker, what I want to see is supply side growth, and the demand will come along with it,” Mann, who is an external member of the BoE’s Monterary Policy Committee, said in an interview with Business News Wales.
“Without supply side growth, demand is a sugar high, and it does not end well.”
She cautioned that bringing inflation down would require a sustained effort.
Mann also said that views on the MPC differed over how demand was affecting the labour market. She voted to keep borrowing costs steady at the MPC’s meeting in May when a majority of her colleagues backed a cut.
“I think that’s where differences in views on the committee come from – a difference in assessment of where the demand conditions really are and how that’s playing out in the labour market with respect to employment prospects and shedding of labour,” Mann said.
In a separate interview published on Tuesday, Mann said inflation pressures remained a challenge and she stressed the importance of using interest rates to bring inflation back to the BoE’s 2% target.
Inflation in the 12 months to June sped up to 3.6% from 3.4% in May, according to data published on Wednesday.
Investors are betting that the BoE will cut rates by a further quarter of a percentage point to 4% on August 7 after its next scheduled MPC meeting.
(Reporting by Sam Tabahriti and William Schomberg; editing by William James)
