Rise in prices might lead to a less significant decrease in interest rates, according to the BoE economist's predictions.
The Bank of England's (BoE) Monetary Policy Committee (MPC) has expressed concerns about the rising inflation rate, with BoE economist Huw Pill warning that persistent inflationary pressures could slow the pace of further interest rate cuts.
In a recent statement, Pill expressed caution due to signs that inflation risks may be shifting towards more persistent inflation. He pointed out that this development is partly driven by external factors like rising food and energy prices, which could spill over into domestic price-setting and keep inflation elevated.
Pill's warning comes after the BoE cut the base rate by 25 basis points to 4% on Thursday. However, his concern is that inflation, which rose to 3.6% in June and is forecasted to hit 4% in September due to rising food costs, might require a cautious approach to further rate cuts to ensure inflation is sustainably controlled.
Pill has often been more hawkish than his MPC peers, voting to keep rates on hold at each of the last four meetings. His stance is in reference to the dissenting members of the MPC who voted to keep rates at 4.25%.
Despite markets still pricing the potential for one more BoE cut of 25bps this year, bringing the base rate to 3.75%, Pill's comments suggest that the outlook for further rate cuts has become less certain.
It's important to note that the consumer price index is not expected to return to the 2% target until the second quarter of 2027. Pill also emphasised that there is no predetermined path for interest rates, and the BoE's goal is to bring inflation down to 2% on a sustainable basis, adjusting the bank rate as necessary to achieve this.
Resurgent inflation has been linked to higher labour costs due to last year's Autumn Budget and increased global food prices. However, the paragraph does not contain any new information about the impact of these factors on labour costs or global food prices.
In summary, Pill's warning reflects uncertainty about whether inflation has truly been tamed, emphasizing that ongoing inflation risks might require maintaining or slowing the pace of interest rate reductions despite some recent easing.
Investing in mortgages or other business ventures might face challenges due to the Bank of England's (BoE) cautious approach to further interest rate cuts, as expressed by BoE economist Huw Pill. The pace of rate cuts could be slowed to ensure that inflation, which has risen above the target rate, is sustainably controlled.
