BoE’s Pill backs rate hike to 4% to limit inflation catch-up effects
Bank of England (BoE) Chief Economist Huw Pill reiterated his support for raising the Bank Rate to 4.00%, arguing that policymakers cannot wait for uncertainty surrounding the Middle East conflict and energy prices to resolve before acting. Pill warned that delaying action could leave monetary policy behind the curve and allow higher energy costs to spread into wages and domestic prices.
Key takeaways
“My own response has pointed to a need to raise Bank Rate to 4%.”
“Raising bank rate on this basis doesn’t signal prolonged aggressive hikes.”
“Prompt increase in bank rate may head off some potential insidious catch-up dynamics.”
“Clear, prompt and decisive policy action and communication would help steer markets and reduce uncertainty.”
“We cannot wait for uncertainties to resolve themselves.”
“A wait-and-see approach risks creating a status quo bias in the setting of interest rates.”
“Fine-tuning interest rates in the face of uncertainty about energy prices is problematic.”
“I am unconvinced that labour-market slack means there will be no second-round effects.”
“There are reasons to believe that second-round effects will be stronger now than during the ‘halcyon days’ of inflation targeting.”
“The Iran war has not de-anchored longer-term inflation expectations.”
“The MPC should be cautious about using relatively extreme ‘what-if’ scenarios to explain its analytical framework.”
