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Bank’s chief economist says inflation persistence still a concern

11 Jul 2024 2 minute read
The Bank of England in the city of London. Photo Yui Mok/PA Wire

The Bank of England’s top economist has suggested there are still worries about lingering price rises in the UK, even though inflation returned to its target level in May.

Huw Pill however said it is fair to say that interest rates will be cut, it is just a case of when.

The chief economist, who is also a member of the Bank’s interest rate-setting committee, spoke at Asia House in London on Wednesday.

It is the second speech to be given by a policymaker since the end of the UK’s General Election campaign period.

Mr Pill said it is “welcome news” that the headline Consumer Prices Index (CPI) inflation rate returned to the Bank’s 2% target in May.

“But the MPC’s (Monetary Policy Committee’s) remit makes clear that the inflation target holds at all times,” he said.

“It is not enough to meet the target in a transitory or fleeting way.

“Rather the MPC must achieve the inflation target on a lasting and sustainable basis.”

Shocks

Mr Pill said that forecasting inflation can be difficult, particularly in the face of “shocks” to the UK economy, therefore making it harder for experts to make monetary policy decisions.

But the economist said it is “hard to dispute that inflation persistence in the UK continues to prove – well, persistent”.

“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 voted to hold interest rates at 5.25% at its latest meeting last month.

But it revealed that the vote had become increasingly “finely balanced”, particularly when it came to assessing certain factors putting more pressure on inflation.

These have been highlighted as services inflation, wage growth and tightness in the labour market – which Mr Pill said have “hinted towards some upside risk” in his assessment of inflation persistence.

Fellow rate-setter Jonathan Haskel said on Monday that interest rates should be held steady next month until the Bank can be certain that factors putting pressure on inflation have disappeared.


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Neil Anderson
Neil Anderson
3 days ago

No confidence.

High interest rates are unnecessary and ineffective against inflation, especially imported inflation!

High interest rates are strangling small business, agriculture and enterprise. They need to be progressively reduced to around 2%, beginning now.

I don’t support Labour’s ‘growth plan’ but high interest rates won’t help it either.

But are welcome to ‘the City’. In whose interest is the UK being run?

Neil Anderson
Neil Anderson
2 days ago
Reply to  Neil Anderson

We need to think carefully about the future role of the BoE, given that it is clearly acting against the interests of the UK public, especially mortgage-holders. Their much-vaunted independence has little if any economic rationale in its support. Just dogma, wholly incorrect dogma, Mr Bitter Pill. The BoE should be accountable, as well as transparent. They are anything but. Proposal to widen the membership of the Monetary Policy Committee might occur under Labour, and should be welcomed. A cautionary note – when the Australian Labor government did so, the New Zealand government – ever-eager to have one over their… Read more »

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