Bank of England’s chief economist says a rate hike need not be start of long series
Markets expect a quarter-point increase after next week’s BoE meeting
The Bank of England’s chief economist, Huw Pill, stated on Thursday (Oct 15) that a potential rate hike following next week’s BoE meeting should not be mistaken for the beginning of a prolonged series of increases. Speaking during a panel discussion at the Bangkok Economic Festival on the sidelines of International Monetary Fund meetings in Bangkok, Pill emphasized that the current action is not part of a "staircase" pattern observed from 2022 and 2023. He explained that this is a response to a different shock.
Pill, who has advocated for rate hikes since April, earlier this week had dismissed market predictions of four rate increases within the next 12 months. Unlike the US Federal Reserve and the European Central Bank, the Bank of England has kept interest rates unchanged since the start of the US-Iran war in February. However, financial markets anticipate a quarter-point increase following the upcoming meeting, considering it highly likely.
The economist reiterated his concerns about Britain's vulnerability to what he termed "insidious" catch-up dynamics in inflation, as workers demand wage increases to offset rising prices. Pill suggested that "you probably need to have more of a prolonged period of restriction" to effectively combat such inflationary pressures.
He also pointed out that higher bond yields in advanced economies may be partly due to the rise in the real neutral rate of interest required to stabilize inflation, further supporting the need for higher rates.
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