‘This all said, in the absence of any big new shocks, the ‘when-rather-than-if’ characterisation of prospective Bank rate cuts still seems appropriate’
The Bank of England’s chief economist, Huw Pill, has expressed concerns about persistent price increases in the UK, despite inflation hitting its target level in May.
Speaking at Asia House in London on Wednesday, Mr Pill, who is also a member of the Bank’s interest rate-setting committee, stated that it’s fair to say interest rates will be cut, but the timing remains uncertain. This marks the second speech by a policymaker since the end of the UK’s General Election campaign period. Mr Pill welcomed the news that the headline Consumer Prices Index (CPI) inflation rate returned to the Bank’s 2% target in May.
However, he emphasised that the Monetary Policy Committee’s (MPC) remit clearly states that the inflation target must be met at all times and not just in a fleeting or transitory way.
He said: “The MPC must achieve the inflation target on a lasting and sustainable basis.’ He acknowledged the challenges of forecasting inflation, especially amid “shocks” to the UK economy, which complicates monetary policy decisions.
But the economist said it is “hard to dispute that inflation persistence in the UK continues to prove – well, persistent”. He added: “This all said, in the absence of any big new shocks, the ‘when-rather-than-if’ characterisation of prospective Bank rate cuts still seems appropriate.”
At its latest meeting last month, the Bank of England voted to maintain interest rates at 5.25%. However, it was disclosed that the vote had become increasingly “finely balanced”, especially when evaluating certain factors that are intensifying inflation pressure.
These factors include services inflation, wage growth and a tight labour market which Mr Pill identified as having “hinted towards some upside risk” in his evaluation of inflation persistence. On Monday, fellow rate-setter Jonathan Haskel suggested that interest rates should remain unchanged next month until the Bank can confirm that factors contributing to inflation have vanished.
