Bank of England’s Pill warns against ‘wait and see’ interest rates approach
The Bank of England’s chief economist has warned that a “wait and see approach” to setting interest rates amid the ongoing Iran war could unleash a fresh wave of inflation that the central bank will find hard to contain if left unchecked. Huw Pill, who has long been one of the most hawkish rate-setters on [...]
Huw Pill, the chief economist at the Bank of England, has cautioned against a "wait and see" approach to interest rates amid the ongoing Iran war. This stance could potentially trigger a new wave of inflation that the central bank would struggle to control if left unaddressed. While the second-round effects of the conflict are not expected to be as severe as the beginning of Russia's invasion of Ukraine, Pill expressed concern that officials might still face difficulties in catching up without a proactive stance.
He emphasized that a "wait-and-see" approach could create a bias in setting Bank Rate due to uncertainties that might not resolve as quickly as hoped. Pill urged the Bank to act "clearly, promptly and decisively" during their next decision on 17th September to tackle emerging inflationary risks. This recommendation came after Pill had previously voted for a 25 basis point rate increase in July, citing rising price pressures stemming from the Iran war.
Despite this, the Bank ultimately decided to keep rates at 3.75 percent, its fifth consecutive unchanged rate meeting. However, Pill had warned in the minutes of that decision that an "insidious" wage-price spiral could emerge if interest rates remained unchanged for too long, as price increases would be slower to materialize but would prove more persistent and intrinsic, thereby creating greater inflation persistence.
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