By David Milliken
LONDON (Reuters) -High inflation in Britain has not been vanquished and it is more likely to overshoot than undershoot Bank of England forecasts over the medium term, BoE interest rate-setter Catherine Mann said on Wednesday.
Mann cast the lone vote against cutting borrowing costs at a meeting of the BoE's Monetary Policy Committee last week which decided by an 8-1 margin to lower the Bank Rate to 4.75% from 5%, and she also opposed an initial rate cut in August.
"We have an upside bias to inflation ... which tends to enable inflation to become embedded, and in that environment it's important to hold (interest rates) for longer," Mann said at a conference hosted by BNP Paribas (OTC:BNPQY).
"When I have evidence that there has been a removal or moderation of inflation persistence - sufficient moderation of inflation persistence - then I will move in a bigger step," she said.
Last week the BoE revised up its inflation forecasts due to a higher minimum wage and short-term fiscal stimulus in the first budget of the new Labour government.
The BoE predicted inflation would rise from 1.7% in September to 2.5% by the end of the year and not return to its 2% target until mid 2027, a year later than it previously thought.
Financial markets only expect the BoE to cut rates twice next year, compared with at least five quarter-point cuts they predict for the European Central Bank as the euro zone economy slows.
Mann said services price inflation in Britain remained "pretty sticky", though there were some early signs that hospitality businesses were finding it harder to push through price rises or pay higher wages.
Energy prices were more likely to rise than fall over the coming years, adding to the overall risk of higher inflation, she said.
"There are some possibilities about downward pressure on inflation coming from export prices coming out of China, for example. But against that ... one piece of news that is downward bias, the rest of it is upward bias and likely to be more volatile going forward over the medium term," Mann said.
U.S. President-elect Donald Trump's threat of high U.S. tariffs on imports from China might lead to more Chinese goods heading to Europe at discounted prices, analysts have said.