Bank of England regulator Catherine Mann said on Tuesday that the pound could face downward pressure if investors have yet to fully price in a hawkish message from the U.S. Federal Reserve. and the European Central Bank.
"The key question for me is how much of the existing hawkish tone is already affecting the pound."
"If it has fully affected, then what we see is what we get. But if it is not fully leveraged, then there may be depreciation pressure.”
Asked how much of the message from other central banks about higher interest rates outside Britain had been weighed against sterling, Mann said: "They've been talking hawkish for a while but I think there's probably more to do."
He informed that the weakness in the value of the pound is due to the inflation rate which has fallen from a peak of 11.1% in October but remained above 10% in January.
Sterling is down about 1.6% against the US dollar and about 3% against the euro over the past three months.
The BoE raised interest rates to 4% last month but suggested it is close to ending the hike that began in December 2021.
Mann voted for the latest 50 basis point rate hike in line with the majority on the nine-member Monetary Policy Committee. At the previous meeting, he had voted for a bigger rate hike than most of his MPC colleagues.
The former chief economist at Citi and the OECD also noted that he remains concerned about the persistence of core inflation and the strong pricing power of firms that are able to pass on their costs to customers.
Regarding the recent weakness in Britain's housing market, which deepened after former prime minister Liz Truss' "mini-budget" crisis last autumn, Mann said there were signs of recovery.
“We have seen a reduction in mortgage rates from the highs of last autumn. We are seeing more competition in terms of products coming from various lenders,” he said. "And that suggests to me that there is more of an upturn in the process than there is continued downward momentum."
