BoE's Pill: More rate rises needed to tackle inflation


Persistent inflation: People at the Borough Market in London. Inflation is thought to have peaked but it is expected to remain elevated throughout 2023. — Bloomberg

LONDON: The Bank of England (BoE) needs to raise interest rates further to tackle inflationary pressures that are becoming increasingly domestic, says chief economist Huw Pill.

“My judgement there is still some more to do in order to address prevailing inflationary pressures and complete the necessary normalisation of monetary policy following a decade or more of exceptional accommodation,” he said at the Beesley Lecture here.

The BoE has raised rates from 0.1% to 3% in the past year, with Pill among the majority who voted for a historic increase of three quarters of a per cent this month.

Inflation is at a four-decade high of 11.1%, more than five times the BoE’s 2% target. It is thought to have peaked but is expected to remain elevated throughout 2023. Markets expect a half-point rate rise in December, and the Organisation for Economic Cooperation and Development forecasts rates to reach 4.5% by June.

Pill said the main two factors behind rising inflation are energy prices and job shortages, with the UK facing acute pressures caused by half a million people dropping out of the workforce since the start of the pandemic.

He said his decisions would be influenced by developments in “the labour market and corporate pricing behaviour.” Recent BoE surveys show companies planning to increase both wages and prices.

Pill repeated the BoE’s argument that rates are not likely to rise above 5%, as priced by markets at the start of the month. “But, given the need to contain the risk of greater inflation persistence implied by potential second-round effects, further action is likely to be required,” he said.

BoE forecasts showed inflation falling below the 2% target in 2024, even under a scenario where interest rates remain at current levels. That’s prompted more dovish members of the Monetary Policy Committee to warn of the risk of overtightening. However, in comments following his speech, Pill said the BoE was maintaining a “laser-like focus” on its mission.

“High inflation begets high price setting, higher wage demands – it is the focus on the things that are key. It is those things that can persist into the 18-month or two-year horizon,” he said. “When you get big shocks all at once, in the same direction, you get a big, and hopefully temporary – we will ensure it is temporary –departure from target.” — Bloomberg

Article type: free
User access status:
Subscribe now to our Premium Plan for an ad-free and unlimited reading experience!

UK , BoE , Pill , rates , inflation , energy , jobs

   

Next In Business News

US economy grew slightly, inflation and rates cloud outlook
Wall St preps for year-end stock rally
Loan demand to buoy Malaysia banking sector
Asia factory activity shrinks on lockdowns
Greener textile and garment industry in Vietnam by 2030
Wages in Singapore up despite inflation
Aussie business investment dips in third quarter
Goldman, Commonwealth Bank at odds over rate outlook
Wall St analysts turn more bullish on Tesla
New York MTA faces US$3bil hole in 2025

Others Also Read