UK inflation hump unlikely to lead to long-term price pressures, BoE's Mann says

By Suban Abdulla

LONDON (Reuters) -Bank of England policymaker Catherine Mann said on Thursday a pick up in inflation was unlikely to lead to longer-term price problems in Britain's economy, and that global volatility had weakened the case for a gradual approach to cutting rates.

"I judged that wage and price setters are more likely to have to absorb the inflation hump rather than pass it through," Mann said in the text of a speech at a Reserve Bank of New Zealand research conference.

The Bank of England forecasts British consumer price inflation will rise to around 3.7% in the third quarter of this year from 3% currently due to one-off effects from higher regulated energy prices, water bills and bus fares.

Mann said she still believed monetary policy should remain restrictive.

She said a gradualist approach to cutting rates of the type preferred by the majority of BoE policymakers was no longer necessary due to recent volatility in global markets.

Mann said an initial impetus for central banks to adopt gradualism was to avoid causing outsize moves in bond markets.

But bond prices have swung sharply in recent months due to investor uncertainty about the economic plans of U.S. President Donald Trump and other countries' response, including a 500 billion euro spending package mooted by Germany's main parties this week.

"In short, international spillovers have dominated the signals from UK domestic data and monetary policy actions," Mann said.

"With substantial volatility coming from financial markets, especially from cross-border spillovers, the founding premise for a gradualist approach to monetary policy is no longer valid."

Mann - an external member of the Monetary Policy Committee and previously seen as its most hawkish voice - was one of two members who in February voted to cut interest rates by a half point rather than with the majority for a lesser quarter-point reduction.

The BoE is expected to hold interest rates unchanged at 4.5% at its next meeting on March 20, and investors are pricing in around two further quarter-point cuts in interest rates over the remainder of this year.

(Reporting by Suban Abdulla; editing by William Schomberg and David Milliken)