The Bank of England chief economist, Huw Pill, announced that as a “reward” to the economy for bringing down inflation, they are planning to bring it down this year.
Hum Pill was one of the six members of the bank’s Monetary Policy Committee voting last week to keep interest rates at 5.25%, where two voted for a hike and one voted to bring it down.
Pill continued that if inflation comes under control, the 16-year high of 5.25% interest rates could be brought down this year.
In a webcast Q&A, he continued: “Lower interest rates are a reward to the economy for better inflation performance. It is the focus on when, rather than if, I think, that has been what the governor has tried to focus on.”
Governor Andrew Bailey has indicated that if more evidence regarding the inflation heading in the right directions are collected, then the next step for the central bank would be to bring down the interest rate.
“The debate has a bit shifted toward asking, ‘When is the point when we will have seen enough accumulated evidence that… we can begin to reduce the level of restriction in monetary policy in the economy and start to cut Bank Rate?’,” Pill stated.
“It is the focus on ‘when’ rather than ‘if’ that has been what the governor has been trying to focus on,” Pill continued.
Wages and the cost of services are the two main metrics that the BoE is examining. The speaker emphasized that the current interest rates are “restrictive,” meaning they are stifling activity and prices, and hence do not require a return to the goal 2% level.
“We don’t need to see inflation get back to 2% on an underlying basis in order to begin to reduce bank rate because we’re at a restrictive level. We can reduce bank rate a little bit, and monetary policy would still be restrictive,” he responded.
From a high of more than 11%, inflation has dramatically decreased to 4% presently.
But according to the Organisation for Economic Co-operation and Development (OECD) on Monday, the UK will have the highest inflation rate among the G7 both this year and the following.
- Published By Team Timeswire