UK’s inflation and interest rates here to stay a while longer: Bank of England economist
The risks to the outlook for the UK economy are two-fold. Inflation remains persistently high, and the outlook for growth remains modest.
This is the view of Bank of England interest rate-setter Catherine Mann who was speaking to the Resoulton Foundation on Thursday (9 October). Mann noted that as a monetary policymaker, she faces a trade-off: leaning against upside inflation with tight(er) policy versus supporting economic growth with loose(r) policy.
“It is perhaps counterintuitive that in order to create an environment conducive to growth, monetary policy must remain restrictive for longer. But this is necessary to bring inflation sustainably back to our 2% target in the medium term.
“My former boss Alan Greenspan (I started my career at the Federal Reserve Board) said it succinctly: ‘We will be at price stability when households and businesses need not factor expectations of changes in the average level of prices into their decisions‘.The evidence from consumer behavior is that we are not there yet,” she said.
Mann noted that high inflation itself is behind scarring, income uncertainty, and weak consumption growth.
“Therefore, monetary policy needs to continue to focus on reducing inflation to achieve the environment of price stability. Then, households can return to their normal consumption-savings behavior which is conducive to stronger consumer demand.”
An unsteady environment
Mann’s comments come after business sentiment deteriorated further into negative territory in Q3 2025 on the back of concerns around the upcoming budget.
The sentiment survey, which is conducted by the Institute of Chartered Accountants in England and Wales (ICAEW), shows the increased pessimism is underpinned by elevated concern over the tax burden as well as above-average inflation, and weak domestic and export sales growth eroding businesses’ profit margins.
The Business Confidence Index dropped to -7.3 in Q3 2025 from -4.2 in Q2 2025, with sentiment falling for the fifth consecutive quarter. The further drop in confidence coincides with another rise in concern about the tax burden, reaching a new survey record high (60%) ahead of the forthcoming government Budget in November.
Confidence is at its lowest level since Q4 2022 and remains well below the historical average (+4.9).
Alongside concerns about the tax burden, domestic sales growth was flat compared to the previous quarter, with businesses reporting growth of 3.0% in Q3 2025, matching the rate in Q2 2025 and remaining below the historical norm (3.1%).
