The Bank of England’s chief economist Huw Pill said that despite forecasts of inflation climbing to 3.7% in the second half of the year, it is ‘unlikely’ to have longer-lasting effects on everyday prices
Bank of England’s chief economist Huw Pill has attempted to ease worries about the anticipated rise in inflation, dismissing its causes as “largely mechanical”.
Despite predictions that inflation could reach 3.7% in the latter half of the year, Mr Pill argues that it is “unlikely” to leave a lasting impact on everyday prices.
He attributed this mainly to factors such as climbing costs for energy, water, school fees, and bus fares, labelling these influences as “largely mechanical in character” and considering the inflation spike more of an “upward blip”. Mr Pill stated: “I don’t think we should interpret (the causes) as indicative of this underlying process of inflation… that we are influencing through monetary policy.”
This commentary came following the Bank’s decision just a day prior, when they lowered interest rates to 4.5%, marking a quarter point reduction and the smallest rate in 18 months. However, despite this cut, there appears to be a bleak outlook for the UK economy with growth projections slashed and expectations set for quicker price increases.
The latest February policy report revealed a halved growth forecast for the current year at 0.75%, a steep drop from the earlier estimate of 1.5%. Inflation, while predicted to hit the Bank’s 2% goal in 2024, is predicted to climb again, though not as steeply as in recent years.
Price rises across the country determine the inflation rate, which is paramount in the Bank’s base interest rate decisions.
Mr Pill asserted the Bank’s underlying assumption that, most likely, there won’t be any “probably not have second round effects beyond the modest ones we see in normal times” But he highlighted that officials must still acknowledge that the increasing prices are those “ones that people face every day, or at least regularly” “There are risks to both sides and that’s something we have to remain quite vigilant about,” he further remarked. Following Governor Andrew Bailey’s comments on Thursday forecasting “the disinflation process” would bring multiple rate reductions this year, Mr Pill underscored the necessity for a “gradual and careful” approach, reiterating sentiments from Friday.
Despite two Monetary Policy Committee members advocating for a sharper half-point reduction, Mr Pill described such an action as “rushing”. Elaborating on his position, Mr Pill stated: “Given what we know now, at least for me, the ‘gradual and careful’ would not lead us to be rushing to the more sizable moves in interest rates, even as some of our colleagues do.”
