The Bank of England’s chief economist says he believes the central bank is “some way off” cutting interest rates.
In a speech at Cardiff University Business School on Friday, Huw Pill said that he needs to see “more compelling evidence” that the underlying persistent component of UK CPI inflation is being squeezed down, so that inflation will sustainably hit its 2% inflation target.
Pill, one of six policymakers who voted to leave interest rates on hold last month at 5.25% at the last MPC meeting, said that he sees the recent downward shift in the persistent component of inflation dynamics as early and “tentative”.
He explained: “In my view, we have some way to go before such evidence becomes conclusive.
“While that persistent component of inflation continues to threaten the lasting and sustainable achievement of the 2% inflation target, the MPC will need to maintain a degree of restrictiveness in its monetary policy stance to squeeze this persistent component out of the system.”
Pill points out that monetary policy could still be restrictive, even if Bank Rate was cut from its existing level.
He added: “Nonetheless, in my baseline scenario the time for cutting Bank Rate remains some way off.
“I need to see more compelling evidence that the underlying persistent component of UK CPI inflation is being squeezed down to rates consistent with a lasting and sustainable achievement of the 2% inflation target before voting to lower Bank Rate.”
