The Bank of England’s chief economist Huw Pill has cautioned that the central bank may be easing interest rates too rapidly, warning that persistent inflation risks could threaten the path back to the 2% target.
Speaking at a Barclays event, Pill said the Monetary Policy Committee had “started cutting slightly too early” and that rates had “plateaued at slightly too low a level” in 2023. The Bank reduced its base rate to 4.25% earlier this month, the latest in a series of 0.25% cuts since August.
“My starting point is that the pace of Bank Rate reduction should be ‘cautious’, running slower than the 0.25% per quarter we have implemented since last August,” he said. Pill clarified that his dissenting vote was not a call to halt rate cuts altogether, but rather to “skip” a reduction this quarter in light of ongoing inflation pressures.
Pill pointed to several concerning signals, including slower declines in pay growth and “obstinately robust” core services inflation. Business surveys are showing renewed strength, and household inflation expectations have ticked up, he said, adding: “In short, I remain concerned about upside risks to the achievement of the inflation target.”
His comments contrast with more optimistic market forecasts, which had priced in four base rate cuts this year. Investors may now need to recalibrate expectations.
Nicholas Mendes, mortgage technical manager at John Charcol, said: “Huw Pill’s remarks are a timely reminder that the Bank of England is not necessarily aligned with market expectations for rapid interest rate cuts. Investors had become increasingly confident that rates would fall steadily over the coming months, but Pill’s tone suggests that such optimism may be misplaced.”
“If he is correct, interest rates may not fall as quickly as previously forecast, and there is even a possibility they could edge higher if inflation proves more stubborn than anticipated,” Mendes added. “We have already seen lenders trimming rates in recent weeks on the basis markets were pricing in four base rate cuts this year, but if that narrative begins to shift, we may see those reductions pause or even reverse slightly.”
