On Tuesday, Bank of England Chief Economist Huw Pill conveyed that while the prospect of interest rate reductions has moved closer due to a lack of negative inflation updates and the passage of time, such cuts are still not imminent.
Pill emphasized the risks of lowering the Bank Rate prematurely, highlighting his preference for a cautious policy approach despite signs of easing inflation pressures.
During his speech at the University of Chicago Booth School of Business’ London campus, Pill remarked, “The combination of little news and the passage of time have brought a Bank Rate cut somewhat closer,” but he maintained his stance from a March 1 speech that “the time for cutting Bank Rate remained some way off.”
This conservative perspective led to a shift in market expectations, with investors scaling back their bets on a rate cut in the upcoming months, particularly by the Bank of England’s August meeting.
Pill, recognized as a moderate within the Monetary Policy Committee, refrained from commenting on market speculations about a potential August rate cut.
He supported maintaining a restrictive interest rate stance, bolstered by business surveys released on Tuesday that align with his economic outlook.
“Economic growth in the UK has resumed, albeit at a modest rate, over the past few months following the technical recession we experienced in the second half of last year. And today’s survey data … certainly supports that view,” Pill explained.
Despite a likely drop in inflation below the Bank’s 2% target soon, Pill cautioned against excessive optimism, noting potential inflation increases later in the year.
This comes in contrast to Deputy Governor Dave Ramsden’s recent suggestion that inflation might stabilize at 2%, which had initially led markets to anticipate earlier rate cuts.
Addressing discrepancies in employment data due to issues with the Office for National Statistics’ labour force survey, Pill noted the difficulty in relying heavily on unemployment and employment figures, especially given recent conflicting data from official and private sector sources.
Further, Pill addressed the BoE’s autonomy in policy decisions relative to other major central banks like the U.S. Federal Reserve and the European Central Bank, which is expected to reduce rates in June.
He also responded to a report by former Fed chair Ben Bernanke on the BoE’s forecasting practices, urging tempered expectations about swift changes in the presentation of UK monetary policy.