A member of the Bank of England’s rate-setting committee has made a case for a steeper cut to interest rates on expectations that an inflation “hump” ahead will be temporary.
Catherine Mann, an American economist, told an audience in Leeds that she currently did not see a repeat of an extended period of inflation in the months to come, such as that which followed Russia’s invasion of Ukraine.
She described herself as an “activist” on the Bank’s monetary policy committee, having voted last week for a half percentage point interest rate reduction.
Ms Mann said her decision aimed to “cut through the noise” about the right stance for policy given the weaker outlook for employment and the economy than had been previously expected at the end of 2024.
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But she cautioned that while her policy path differed to the majority view for “gradual” rate reductions, the Bank rate, she said, would need to remain restrictive for longer.
Ms Mann had been considered the top hawk – a policymaker leaning towards higher rates – on the Bank’s monetary policy committee (MPC) until it emerged she had backed a half-point cut.
A 0.25 percentage point reduction was passed.
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Her earlier worries about rate cuts included a high pace for wage growth and budget-linked investment, stoking inflation down the line.
Last Thursday’s rate decision meeting minutes showed that she, and one other member of the MPC Swati Dhingra, had varied concerns relating to the Bank rate remaining too restrictive at a time of weak economic growth and a weakening employment outlook, with both likely to weigh on inflation naturally.
New Bank staff projections saw the economy growing by just 0.75% this year and inflation topping 3.7% – up from the current 2.5% rate.
Ms Mann told the audience at Leeds Beckett University: “In a speech last February I said, ‘Do not be seduced by the deceleration in headline inflation’. This February, I say, ‘Do not be dismayed by the hump… yet’.”
She expected much of the anticipated increase in inflation this year to come from energy and food, with contributions from other elements such as water bills, phone bills and insurance.
These are factors outside the Bank’s control.
What it wants to avoid is a price spike that forces up wage growth to counter the higher costs – as happened after the energy-led start to the cost of living crisis in 2022.
She said that elements such as budget tax rises on employment would, as Bank surveys have suggested, weigh on both wage growth and therefore inflation.
“I chose 50 basis points now, along with continued restrictiveness in the future, and a higher long-term Bank Rate
to ‘cut through the noise’,” she added.
Environment
Affirm plans to bring Buy Now, Pay Later debit cards to more users through deal with FIS
PayPal Inc. co-founder and Affirm’s CEO Max Levchin on center stage during day one of Collision 2019 at Enercare Center in Toronto, Canada.
Vaughn Ridley | Sportsfile | Getty Images
Affirm, the online lender founded by Max Levchin, expanded beyond credit and entered the debit market four years ago with a card that let users pay over time. Now the company is making it possible for banks to offer that service to their customers.
Affirm, which pioneered the buy now, pay later business (BNPL), has partnered with FIS in a deal that will allow the fintech company to offer the pay-over-time service to its banking clients and their millions of individual customers.
Any bank that partners with FIS will be able to provide its own version of the Affirm Card, which launched in 2021, without asking customers to adopt a new piece of plastic. Consumers can access Affirm’s biweekly and monthly installment plans and have the money automatically deducted from their checking account.
There are approximately 230 million debit card users in the U.S., according to the Federal Reserve Bank of Atlanta. BNPL services have traditionally been tied to credit cards or standalone financing products, rather than to debit offerings.
“Consumers today are looking for innovative and user-friendly experiences that give them flexibility and control over their money,” Jim Johnson, co-president of banking solutions at FIS, said in the press release. Affirm’s offering can help banks “offer more competitive, differentiated services through their own banking channels,” he said.
Affirm has over 335,000 merchants in its network, ranging from travel booking sites and concert ticket providers to jewelry stores and electronics providers. By bringing BNPL into the debit world, Affirm aims to provide consumers more alternatives to credit.
In its earnings report last week, Affirm reported better-than-expected quarterly revenue and posted a surprise profit from the holiday period. The stock rocketed 22% after the announcement.
Affirm’s active consumer base grew 23% year over year to 21 million users. The Affirm Card now has 1.7 million active users, up more than 136% from the year-ago quarter. Card volume has more than doubled.
In June, Affirm and Apple announced plans for U.S. Apple Pay users on iPhones and iPads to be able to apply for loans directly through Affirm.
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