Calls for "cautious" approach as disinflation shows signs of slowing
The Bank of England may be moving too fast in its interest rate reductions, according to its chief economist Huw Pill (pictured), who has again voiced concerns about inflation risks.
Pill, a member of the Monetary Policy Committee (MPC), voted against the central bank’s recent decision to lower its benchmark interest rate by 25 basis points to 4.25%. Speaking at a Barclays-hosted event, he said the central bank should have skipped a cut this quarter in light of persistent inflationary pressures.
“My starting point is that the pace of bank rate reduction should be ‘cautious’, running slower than the 25bps per quarter we have implemented since last August,” Pill said.
He argued that the bank may have begun easing too soon last year and suggested its main rate had “plateaued at slightly too low a level” during 2023 as it attempted to bring inflation under control. Pill’s comments continue a pattern of caution as the central bank navigates a complex economic environment.
While inflation has eased from its peak, Pill warned that signs of disinflation are weakening. “Disinflationary momentum has shown signs of stuttering,” he said. Pay growth has been slower to decline than expected, and core services inflation remains elevated.
Business activity indicators are strengthening again, and household inflation expectations have risen, he noted. These developments follow an extended period of inflation remaining above the bank’s 2% target.
His remarks suggest growing division within the MPC on how quickly to ease policy amid uncertain economic signals. At its meeting earlier this month, the committee voted 5–4 in favour of cutting the bank rate by 0.25% to 4.25%. Two members supported a larger cut to 4%, while two others – including Pill – voted to keep the rate unchanged at 4.5%.
“I would characterise my May vote as favouring a ‘skip’ within a continuing withdrawal of monetary policy restriction, rather than a halt to the process of withdrawal,” Pill remarked. “I still view the underlying disinflation process (towards lasting achievement of the 2% inflation target) as intact.
“It is the quarterly pace of 25bps bank rate cuts delivered since last summer that I question on this occasion – in line with my revealed preference for a “cautious and gradual” withdrawal of restriction over the past year.”
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