Mann: markets price over 100bp of UK hikes while surveys expect a hold

Victoria Shinder02 October 2026, 07:482 min read

Bank of England policymaker Catherine Mann has argued that UK financial markets are pricing far more tightening than the people who trade in them say they expect, and that the gap is a risk premium the Bank should not rely on. In a speech titled "Financial conditions: what's priced in?", published on 1 October for a Nomura investor conference, she set out the evidence behind her votes for a 25 basis point rise in Bank Rate at the Monetary Policy Committee's last two meetings.

The centre of the speech is a comparison. If the overnight index swap curve reflected only expected policy, she said, it would imply almost 75 basis points of tightening over the next 12 months at the time of the Bank's September survey of market participants; since then the gap has widened further, to over 100 basis points. The survey itself implies a prolonged hold followed by cuts. The UK gap is larger than in the US or the euro area, and by her measure has grown since the Middle East conflict began to levels last seen after Russia's invasion of Ukraine.

Using the Bank's term structure models, she estimated that higher term premia account for around 24 basis points of the roughly 100 basis point rise in UK three-year yields over the past year, against 4 basis points in Germany; in the US the term premium accounts for about 25 of 140 basis points. Short-end term premia in the UK have turned positive, which she called unusual, and staff work finds them more sensitive to news, partly because of more international investors and fewer pension and insurance buyers.

She also asked whether the Bank contributed. The unanimous decision to hold in March, she suggested, may have raised uncertainty because communication focused on the conflict rather than the underlying economy, or because the reaction function was not clearly set out. Her conclusion: real financial conditions are insufficiently tight, and the response should be a clearly communicated reaction function and higher Bank Rate, rather than letting inflation and policy-uncertainty premia do the work.

Why it matters

Mann is the MPC's most hawkish voice, so the vote is no surprise. The argument is the news: a policymaker saying part of the market's tightening is a premium the Bank itself created, and that the cure is to follow through with hikes the market already prices.