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The Bank of England’s (BoE) chief economist, Huw Pill, has expressed a more cautious view on future interest rate cuts, seemingly contradicting governor Andrew Bailey’s recent suggestion that policymakers could take a more aggressive approach.
Speaking at the Institute of Chartered Accountants in England and Wales Annual Conference, Pill warned that there is “ample reason for caution” when assessing the risk of inflation rebounding in the coming months.
Inflation, which had dipped to the Bank’s 2% target in May and June, has since risen to 2.2%. “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,” Pill added.
He emphasised the need for a “gradual withdrawal of monetary policy restriction”, highlighting the risk of premature rate cuts as the economic outlook remains uncertain.
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Pill, known for his hawkish stance, was one of four members of the BoE’s Monetary Policy Committee (MPC) who opposed the August rate cut, but they were outvoted by the other five members.
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 added that the MPC “needs to ensure that UK CPI inflation is kept at its 2% target on a credible, lasting and sustained basis”.
Pill said: “I remain concerned about the possibility of structural changes sustaining more lasting inflationary pressures.
In an interview with The Guardian the day before, 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.
The BoE governor said that if inflation remains in check the Bank might be able to be “more activist” over reducing borrowing costs.
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