Bank of England rate-setter Catherine Mann has taken aim at the central bank's own communication strategy, arguing that its "wait mode" messaging after the Iran war may have pushed UK borrowing costs higher for the wrong reason: more uncertainty, not a genuine cooling of the economy.
Speaking at the Nomura London Macro Forum, Mann criticized the BoE's March decision to hold interest rates while adopting a cautious tone, which markets interpreted as a pause-and-see stance following the geopolitical shock. The result, she argued, was a jump in UK government bond yields that may have been driven less by genuinely tighter monetary policy and more by investors pricing in higher expected inflation plus an extra "monetary policy uncertainty premium" — a premium for not knowing how the BoE will react next.
What is the 'monetary policy uncertainty premium'?
When a central bank signals it is in "wait mode," investors are left guessing about the future path of interest rates. That uncertainty itself can become a factor in financial markets. In this case, Mann suggested that the BoE's March message may have added a premium to UK yields — meaning investors demanded higher returns to hold UK government debt — not because policy was actually tightening, but because they were unsure what the BoE would do next.
This distinction matters. If yields rise because the central bank is genuinely tightening policy, that is a deliberate act to cool inflation. But if yields rise because of uncertainty about policy direction, it can be a less efficient outcome: borrowing costs go up without the same economic slowdown that a deliberate rate hike would bring.
Mann's comments echo a broader debate among central bankers about how to communicate in times of crisis. When a shock like the Iran war hits, markets look to the central bank for clarity. If the message is ambiguous, investors may overreact, and the very act of waiting can become a policy mistake.
Why this matters for UK borrowers and investors
For everyday investors, the practical impact is in the cost of borrowing. UK mortgage rates and corporate borrowing costs are closely tied to government bond yields. If yields rise because of an uncertainty premium, that can feed through to higher mortgage rates and higher costs for businesses, even if the BoE has not actually raised its base rate.
Mann's critique also highlights a challenge for the BoE: how to balance the need for caution with the need for clarity. In March, the BoE held rates steady, but its cautious language may have inadvertently signaled that it was worried about the economic outlook, leading markets to price in a higher risk premium.
This is not just a UK issue. Central banks around the world have struggled with communication in the wake of geopolitical shocks. The Bank of Japan, for instance, has recently signaled a faster pace of rate hikes as inflation nears its target, a shift that also carries communication risks. Similarly, the Reserve Bank of Australia has faced market jitters over oil-driven inflation fears, as seen in the recent ASX 200 slide. The common thread is that central bank messaging can move markets as much as the policy itself.
What investors should watch next
For UK investors, the key question is whether the BoE will clarify its stance in upcoming meetings. If Mann's critique gains traction within the Bank, we could see a shift toward more explicit forward guidance, which might reduce the uncertainty premium and potentially ease yields.
However, the BoE also faces a tricky inflation backdrop. If inflation expectations remain elevated, the Bank may need to keep rates higher for longer, regardless of communication style. The uncertainty premium Mann identified could persist if the economic outlook remains clouded by geopolitical risks.
For now, investors should be aware that UK yields may be reflecting not just the BoE's policy stance, but also the market's uncertainty about that stance. That means bond prices could be more volatile than usual, and mortgage rates could move in ways that are not directly tied to the BoE's base rate.
Mann's comments are a reminder that central bank communication is a policy tool in itself. When it is done well, it can anchor expectations and reduce market volatility. When it is done poorly, it can add an extra layer of uncertainty that affects borrowing costs for everyone.
As the BoE navigates the aftermath of the war shock, investors will be watching not just what the Bank does, but what it says — and how clearly it says it.
