BOE's Pill Sees Need For Caution In Cutting Key Rate — Update

By Paul Hannon

The Bank of England should proceed cautiously in lowering borrowing costs as inflation cools, Chief Economist Huw Pill said Friday.

In a speech, Pill said inflation would only decline if the central bank continued to restrain households and businesses through its key interest rate.

"While further cuts in [the] bank rate remain in prospect should the economic and inflation outlook evolve broadly as expected, it will be important to guard against the risk of cutting rates either too far or too fast," Pill said.

His comments follow an interview with BOE Gov. Andrew Bailey published by the Guardian newspaper Thursday in which he said more "aggressive" cuts are possible if inflation continues to cool.

Pill was one of the four rate-setters who voted against the BOE's first, and to date only, cut in August. Megan Greene, who voted with him, said in a recent speech that she now supports "a gradual approach to removing restrictiveness."

Pill's shift to support rate cuts, albeit at a gradual pace, will underpin expectations that the BOE will cut again in November, when it publishes new forecasts for growth and inflation.

But despite Bailey's comments, it is unclear how rapidly the U.K.'s central bank will move after that.

The U.K.'s inflation rate was unchanged at 2.2% in August, close to the BOE's 2% target. But some policymakers worry that rapid rises in wages will continue to push prices of labor-intensive services sharply higher.

"There is ample reason for caution in assessing the dissipation of inflation persistence," Pill said.

The BOE's chief economist also warned that while policymakers have focused their attention on the aftershocks to the economy from the Covid-19 pandemic and Russia's invasion of Ukraine, fresh disruptions shouldn't be ignored.

"We also need to be alert to new disturbances to the global and U.K. economies that may require a more substantial revision to our approach," he said.

One potential source of turbulence is the escalating conflict in the Middle East, which has pushed oil prices higher in recent days.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

October 04, 2024 05:04 ET (09:04 GMT)

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