Huw Pill was among the four members who didn’t support the rate cut on Thursday, stating he was ‘erring on the side of caution’ regarding his vote
The Bank of England’s top economist, Huw Pill, has indicated that the institution should be wary of reducing interest rates too rapidly in upcoming meetings, following the Bank’s decision to lower rates for the first time in four years this past Thursday.
Huw Pill commented: “There may be a tendency to think inflation is back at target, so interest rates can go back to where they were. I think that’s a little bit quick.” He shared his insights at a briefing on Friday, which followed the Bank’s move to trim rates down to 5% from the 16-year peak of 5.25%.
Acknowledging the shift from “a when-rather-than-if debate” about rate cuts, Mr. Pill echoed Governor Andrew Bailey’s sentiments from Thursday, warning that policymakers should avoid being overzealous with further rate reductions. His caution stems from ongoing high inflation within the services sector, suggesting there could be an underlying resurgence in inflation.
Mr. Pill remarked: “We can’t be complacent, we can’t declare job done, because there are dynamics in the UK economy, the more persistent component, that we need to be cautious about. We have to return inflation to the 2% target on a lasting and sustainable basis and I think there’s still a little bit of way to go with that.”
In addition, he recognized progress but maintained a cautious outlook: “We are not out of the woods but we do think we are making progress.” Interestingly, Mr. Pill was among the four members who didn’t support the rate cut on Thursday, stating he was “erring on the side of caution” regarding his vote.
On Thursday, the Monetary Policy Committee was divided, with five members voting for a rate cut while four preferred to maintain the interest rate at 5.25% a bit longer. The group preferring to wait, which included Megan Greene, Jonathan Haskel, and Catherine Mann, sought “stronger evidence” that inflation risks wouldn’t escalate.
Mr Pill’s comments seem to back many economists’ predictions that rates will hold steady at the committee’s September meeting, though a cut might be on the cards for November. Despite the split decision, homeowners may breathe easier as mortgage costs decrease, but this could lead banks to slash savings rates.
This development follows the Consumer Prices Index inflation reaching the Bank’s 2% target in May and June, suggesting price increases are under control.
