LONDON (Reuters) -Bank of England Chief Economist Huw Pill said on Friday that interest rates will probably need to be cut more slowly because of stubborn inflation pressures still in the economy.
Pill, who is one of the Monetary Policy Committee members who has been most vocal about inflation risks, said there were still signs that underlying price growth was too strong and high inflation expectations risked becoming embedded.
“All this supports 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,” Pill said in a speech to the Institute of Chartered Accountants in England and Wales.
Pill voted against the BoE’s most recent rate cut to 4% in August.
The BoE is trying to gauge whether inflation pressures in Britain’s economy are abating sufficiently for it to resume cutting borrowing costs.
“While I would expect further cuts in Bank Rate over the coming year should the economic and inflation outlook evolve broadly as the MPC expects, it will continue to be important to guard against the risk of cutting rates either too far or too fast,” Pill said in Friday’s speech.
“I continue to view a decision to keep Bank Rate on hold as a ‘skip rather than a halt’ in monetary policy normalisation. But the need to recognise the stubbornness of inflationary pressures is becoming more pressing.”
Governor Andrew Bailey said earlier this week that the latest round of labour market data backed his view that underlying inflation pressures were cooling.
Investors recently brought forward their bets on when the BoE is likely to make its next rate cut which is now almost priced in fully for February. On Monday, before the labour market data, those bets had pointed to a move in April.
(Reporting by William Schomberg and Muvija M, writing by Sarah Young; editing by William James)
