The Bank of England should take a "more cautious" approach to cutting interest rates due to persistent inflation concerns, the central bank's chief economist has warned. Huw Pill stressed that rate-setters must avoid reducing borrowing costs "too far or too fast".
Pill delivered the warning during a speech in London, where he acknowledged that further rate cuts are expected over the next year if economic conditions align with forecasts. However, he emphasised the need for a measured approach to monetary policy changes.
Current rate policy
The Bank's nine-member monetary policy committee, including Pill, voted to maintain interest rates at 4% last month. Rates are widely expected to remain at this level at next month's meeting following a recent uptick in inflation.
Inflation was most recently recorded at 3.8%, well above the Bank's 2% target rate. The central bank has indicated that interest rates peaked at 4% in September, significantly higher than the government's target level.
Cautious approach justified
Pill outlined his position on Friday, stating: "My view that the MPC should adopt, from this point forward, a more cautious pace in withdrawing monetary policy restriction so as to ensure continuation in disinflation towards the 2% target." He described keeping rates on hold as a "skip rather than a halt" in monetary policy normalisation.
The economist highlighted growing concerns about inflation's persistence, saying: "But the need to recognise the stubbornness of inflationary pressures is becoming more pressing." He noted that consumer price index inflation has proved "stickier" than the Bank anticipated since rates reached target levels last year.
Pill expressed disappointment with the lack of progress, adding: "Given our unambiguous commitment to meeting the 2% inflation target, the lack of progress over the past year is obviously disappointing."
Sources used: "PA Media" Note: This article has been edited with the help of Artificial Intelligence.
