Insights 
VT 
BOE policymaker Catherine Mann noted the UK labour market’s resilience, surpassing expectations. Despite this, she expressed concerns about rising household inflation expectations and the need for firms to lose pricing power.
Mann observed an increase in goods price inflation and recently shifted to a more hawkish stance after previously voting to keep the bank rate unchanged. She justified her stance by stating they would discontinue using restrictive language “when it is appropriate” due to current market volatility and uncertainty.
Balancing Act Challenges
Mann’s statement underlines a balancing act that still requires careful calibration. On one hand, the UK labour market has held up more robustly than most anticipated, hinting that wage pressures may persist longer than some have priced in. That durability, though encouraging for employment stability, may complicate the broader picture when taken alongside households beginning to expect higher prices over time.
We are also seeing early signs that price increases for goods are becoming more embedded, which gives further weight to Mann’s shift toward a tone that supports tighter policy. Her more hawkish approach isn’t just reactive—it’s a signal meant to counter any premature notions that rate cuts are on the immediate horizon. When she says restrictive language will ease “when it is appropriate,” it’s a telling phrase: forward guidance remains deliberately flexible to account for volatility across rates and inflation-linked markets.
From our perspective, the change in tone and the shifting dynamics of goods pricing suggest continued two-way risk. Hawks like Mann aren’t simply worried about core data points anymore—they’re responding to perceptions, particularly how inflation expectations might inform corporate behaviour. Pricing power is one factor that has quietly extended persistent inflation, especially among smaller firms who have retained margin flexibility.
With this backdrop, the coming weeks demand close watching of near-term economic releases, especially data that touch on wages, retail pricing, and spending shifts post-holiday season. Traders in futures and options markets may interpret this push by Mann as an effort to backstop the idea that rate cuts are not yet assured. The suggestion is that upside inflation surprises would likely carry more policy influence than downside ones.
Market Signals and Rate Volatility
Rate volatility at the front end could stay elevated, especially as the Bank remains non-committal on timing signals. Breakevens may also respond to any further drift in consumer inflation surveys, which now appear more relevant than usual. Mann’s emphasis on market uncertainty seems to reflect internal discomfort with locking into forward policy bets, a stance which will continue to matter as dispersion in economic data sharpens.
Positioning skew has started to widen, not just in rate paths, but also in implied vol. What we’ve noticed is that even mild commentary adjustments are now triggering sharper re-pricing. It will probably take multiple reinforcing data points before policy bias feels more predictable again. For now, that introduces embedded uncertainty into nearly every maturity point on the curve.
