Bank of England Chief Economist Huw Pill said he “hopes” the central bank has hiked interest rates by enough, in the clearest sign yet that it could be headed for a pause after a string of 12 consecutive rises.
(Bloomberg) — Bank of England Chief Economist Huw Pill said he “hopes” the central bank has hiked interest rates by enough, in the clearest sign yet that it could be headed for a pause after a string of 12 consecutive rises.
But with UK inflation remaining more than five times the 2% target, Pill said officials would have to keep a close eye on upside risks such as wage growth and labor market tightness.
Pill’s comments come just days after the BOE bumped up its base rate by another 25 basis points to 4.5%, the highest since 2008.
“I’d like to think that we have done enough, but we definitely have to monitor those risks that I was describing earlier to ensure we have done enough,” Pill told members of the public in an online question-and-answer session on Monday.
Read more: BOE’s Pill Says AI May Help Central Banks Make Better Decisions
During the Q&A session, Pill addressed for the first time comments he made on a podcast last month in which he told households they “need to accept” they are poorer and that “we all have to take our share” of the cost-of-living crisis. He faced a backlash after critics deemed his words insensitive, and said they failed to recognize that poorer households are bearing the brunt of the higher prices.
Pill said that the “viral response” to his comments “hasn’t been very helpful” to the Bank’s communications. Adding some nuance to his previous statement, he acknowledged that low-income families were affected worst.
But Pill emphasized that it was important for Britons to understand why their money wasn’t stretching as far, and that higher interest rates – while painful for mortgage holders and other borrowers – were needed to bring inflation down.
‘Suck It Up’
“We kind of have to suck it up in the short term and I know that’s painful,” he said. “I know that’s something that we prefer not to have to do.”
Pill said the war in Ukraine, the energy crisis and now efforts by workers to bid up their wages were all driving prices up.
“Everyone trying to maintain spending power threatens to cause persistent inflation,” Pill said.
The BOE raised interest rates again last week “because we’re concerned that there’s a little bit too much momentum in the economy at present in order to be compatible with inflation coming down from its current elevated rate 10% down to the 2% target over a reasonable period,” he said.
Read more: BOE Chief Economist Says UK Inflation at ‘Turning Point’ (1)
Meanwhile, former BOE governor, Mervyn King, said central banks were “foolish” to make precise growth and inflation forecasts after the BOE was forced to scrub its prediction of a UK recession last week.
“The circumstances of a pandemic and what’s been happening in Ukraine mean that it is foolish to try to pretend that one can forecast accurately,” he said in an interview with Bloomberg TV. “[It was] far too precise. We do not know enough about the future to make those forecasts. What we need to do is to identify risks.”
The BOE has been criticized for warning in November that the UK was facing a prolonged recession before scrapping the prediction altogether in new forecasts last week.
King also said central bankers are too focused on inflation data for determining the future path of prices.
“We need to look at variables like the growth of money to get some feel for what may happen in the future,” he said. “The inflation numbers are giving a backward-looking view, not anticipating where the future might go.”
He added that it was “very strange” that central banks used policy to boost demand during the pandemic when supply was being constrained.
Read more:
- UK Greedflation Concerns are Groundless, Ex-BOE Rate Setter Says
- BofA Expects Another UK Rate Hike After ‘Hawkish’ BOE Forecasts
- Renters Outside London Paying Over £1,000 a Month for First Time
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