Bank of England Chief Economist Huw Pill, who has voted for a quarter-point interest rate hike in recent months, said on Wednesday he was more sceptical about market pricing of four increases to borrowing costs by the BoE over the next year.
“Is it obvious that we will need to move, follow market pricing to four 25 basis-point hikes and so forth? So there, I would be a little bit more sceptical,” Pill said during an event organised by Citi on the sidelines of the semi-annual meetings of the International Monetary Fund in Bangkok.
“I think it is important we get ourselves in the right position. I think we have some work to do there. I think that is something that probably is increasingly obvious now. But is four hikes appropriate over the next year?”
While Pill and two other Monetary Policy Committee members voted to raise rates in September, a majority on the MPC including Governor Andrew Bailey preferred no change pending clearer signs of the impact of the Iran war on inflation.
However, several policymakers warned rates might have to go up if the conflict continues. On Tuesday Bailey repeated his view that pressure on broader inflation had so far been subdued, “but the longer this goes on, the harder it gets.”
Investors are pricing the chance of a quarter-point rate hike by the MPC at its next meeting in November as a near certainty followed by three more increases by September 2027.
Pill said on Wednesday that the difference of views on the MPC had narrowed given the continued conflict in the Gulf.
“It’s clearer that the implications of that are inflationary for the UK in a more persistent way, and I think it’s clearer that there is a risk of some self-sustaining momentum taking hold,” he said.
Pill said a slowdown in pay increases in Britain was a positive development for the inflation outlook but it remained “at best” at the upper levels of the pace of growth that is consistent with the BoE’s 2% inflation target.
(Writing by William Schomberg）
