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“I remain concerned about the possibility of structural changes sustaining more lasting inflationary pressures.”
– Huw Pill
Huw Pill, chief economist for monetary analysis at the Bank of England, has hinted at a ‘cautious’ approach to reducing Bank Rate, despite Bank of England governor Andrew Bailey saying this week that it could be a “bit more aggressive” in cutting interest rates.
Pill, a member of the Monetary Policy Committee, said in a speech this week that “at present, that there is ample reason for caution in assessing the dissipation of inflation persistence and the need for such caution points to a gradual withdrawal of monetary policy restriction”.
He also revealed that he “was one of the four dissenters from the decision to cut Bank Rate” in the 5-4 vote in August.
Pill said that Bank Rate “will need to fall over time, but at a pace that ensures sufficient restriction is maintained in the transition for UK inflation to reach target in a lasting and sustained manner, not just fleetingly or in passing”.
He stressed that the MPC “needs to ensure that UK CPI inflation is kept at its 2% target on a credible, lasting and sustained basis”.
Pill added: “I remain concerned about the possibility of structural changes sustaining more lasting inflationary pressures.
As we approach the next MPC meeting in November, we will have more data and new forecasts. I will have to update my assessment of the character, likelihood and relevance of the cases and their implications for policy votes and decisions. Given that the cases described in September continue to focus on the dissipation of the large pandemic and invasion shocks, we also need to be alert to new disturbances to the global and UK economies that may require a more substantial revision to our approach.”
He concluded: “While further cuts in Bank Rate remain in prospect should the economic and inflation outlook evolve broadly as expected, it will be important to guard against the risk of cutting rates either too far or too fast.”
Earlier this week, Andrew Bailey suggested that there will be further cuts to Bank Rate this year, stating that the Bank could be a “bit more aggressive” in cutting interest rates.
In an interview with the Guardian, Bailey cautioned that the Bank won’t cut rates “too far or too fast” but noted that it would be a “bit more activist” if inflation continues to ease.