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The Bank of England’s chief economist has warned it has been cutting rates too quickly, and argued its policymakers should have held the level unchanged given ongoing inflationary persistence.
Huw Pill, who opposed the quarter-point reduction earlier this month to 4.25 per cent, said he had advocated policymakers “skip” reducing rates this quarter, rather than “halting” the process of lowering the level altogether.
He added: “My starting point is that the pace of Bank Rate reduction should be ‘cautious’, running slower than the 25bp per quarter we have implemented since last August.”
The Bank’s key rate “plateaued at slightly too low a level” back in 2023 when it was battling high inflation, he said, adding that the Monetary Policy Committee had started cutting the rate “slightly too early” last year.
Pill has been a consistent voice of caution as the central bank embarks on a series of rate reductions. He said that, while progress of inflation back down towards the 2 per cent target was ongoing, “disinflationary momentum has shown signs of stuttering”.
In particular, the pace of declines in underlying pay growth has slowed, while core services inflation remains “obstinately robust”.
Meanwhile, he was seeing renewed strength in business survey indicators, while household inflation expectations have picked up.
This all comes against a background of nearly four years of above-target inflation, Pill added in a speech at an event hosted by Barclays.
He added: “In short, I remain concerned about upside risks to the achievement of the inflation target.”
