Huw Pill, the Bank of England’s chief economist, signalled that further interest rate cuts were on the way, while striking a cautious note on the continued persistence of inflation.
Speaking at the UBS Conference, Pill, who is considered among the more hawkish members of the Bank’s Monetary Policy Committee (MPC), said there were still plenty of reasons for the Bank to be cautious.
Pointing to the pay figures out this morning, Pill said wage pressures remain “quite sticky”. The figures showed that regular pay growth fell to 4.8 per cent in the three months to September, slightly ahead of City expectations.
Pill said levels of pay growth were “hard to reconcile” with the inflation target given the level of productivity growth in the UK.
He also argued that prices in the services sector were “stuck at a higher rate of inflation than we see in other jurisdictions,” suggesting domestic price pressures remain more pronounced than elsewhere.
Nevertheless, Pill still argued that the Bank of England would likely be able to gradually dial back monetary restrictiveness over the coming months.
Huw Pill, chief economist at the Bank of England. Photographer: Graeme Sloan/Bloomberg via Getty Images
“The direction of travel rates in this context, I think, is clear, and we are part of a reduction of restriction towards more neutral levels. I think it’s also fair to say that in the UK, based on what was your present, that’s likely to be a gradual process,” he said.
The Bank cut interest rates for the second time this year last week, bringing the benchmark Bank Rate down to 4.75 per cent.
However, Pill suggested that there might be some risks in the global economy that could “knock off” the UK’s disinflation process.
He asked whether there were global developments to which “the UK, as a small open economy, is particularly exposed”, likely referring to the potentially inflationary implications of a second Trump presidency.
Trump has threatened to impose tariffs of at least 10 per cent on all imports, rising to 60 per cent for China, which could prompt retaliatory tariffs from other jurisdictions.
Despite the challenges of the past few years, Pill argued that the UK’s monetary policy framework had withstood the test of higher inflation in fairly good shape
He noted that inflation fell to 1.7 per cent in September, down from just over 11 per cent when Pill joined the Bank around two years ago.
“I think a big part of that reduction is not by accident, but by design, particularly by the design of the framework for monetary policy in this country and in other parts of the world,” he said.
He pointed to the Bank’s emphasis on price stability, the two per cent inflation target and the Bank of England’s independence to set monetary policy.
“Those are all key elements that have served as well,” he said. “I do think it’s important, from where we sit today, to recognise the benefits of that framework and the fact that it has delivered considerably in terms of performance”.