Huw Pill, Chief Economist at the Bank of England (BoE), has stated that despite previous interest rate hikes, the central bank cannot be certain that it has raised rates enough to combat inflation. Pill mentioned that the Bank of England needs to “see the job through” in terms of taming inflation and returning it to the target sustainably.
In March, Pill voted with the majority on the BoE’s Monetary Policy Committee to raise the main interest rate to 4.25% from 4%, marking the 11th rate increase since the rate-hiking cycle began in December 2021.
Pill emphasized that he could not provide guidance on how he would vote at the next rate decision in May, and financial markets currently see a 70% chance of another quarter-point rate increase at that time.
He noted that while headline inflation is expected to decrease significantly during the year due to base effects and declines in energy prices, caution is still warranted in assessing inflation prospects because of the potential persistence of domestically generated inflation.
Pill and Tenreyro both highlighted that the outlook for a substantial drop in inflation now appears stronger compared to a few months ago, thanks to factors such as a slowdown in private-sector wage growth and lower oil and gas prices.
However, they also mentioned the risk that the improvement in domestic demand and employment prospects might not be matched by the economy’s supply capacity, which could lead to ongoing inflation risks.