Bank of England Chief Economist Huw Pill signaled policy makers are ready to reduce the speed of their interest rate increases, saying there’s a risk of “overtightening” if the pace over the past few months is maintained.
(Bloomberg) — Bank of England Chief Economist Huw Pill signaled policy makers are ready to reduce the speed of their interest rate increases, saying there’s a risk of “overtightening” if the pace over the past few months is maintained.
The official who sits on the nine-member Monetary Policy Committee also said the labor market has shown signs of loosening, a suggestion that upward pressure on inflation from pay rises may be easing.
The remarks in the text of a speech given at Warwick University are the clearest sign yet that the BOE may endorse a quarter point increase at its March meeting — or even a pause in the quickest cycle of rate rises in three decades.
“Continuing to raise rates at the pace and magnitude seen over the past year would eventually – and perhaps soon – imply that monetary policy had cumulatively been tightened too much,” Pill said, according to a text released by the BOE in London on Thursday.
The BOE’s key rate now stands at 4% after a series of half-point rate hikes and one 75-basis point increase that itself was the biggest single upward move since the central bank won authority to set borrowing costs in 1997.
Investors have walked back bets on the BOE boosting rates, not quite pricing in a quarter-point increase for the March 23 meeting. Money markets now suggest rates peak at 4.5% by the end of Summer, though even that increase is less certain.
He also said policy makers need to remain vigilant about containing inflation, which reached a four-decade high last year and remains five times the 2% target.
“I still choose to emphasize the MPC’s need to be watchful for signs of greater-than-expected persistence in inflationary pressure,” Pill said. “And I would flag the need for the Committee to maintain a readiness to act to address any such persistence should it emerge.”
Pill said much of the impact of the tightening the BOE already implemented has yet to impact the economy. Officials expect the UK to slip into a recession, with no sustained growth before 2025. Pill said those moves are needed to contain inflationary pressures, a remark that suggests no rate cuts on the horizon.
“Given my assessment of the data as they stand and recognizing the substantial policy tightening already implemented, in my view the MPC’s current priority must be to ensure we see the job through, so as to return inflation to target on a sustainable and lasting basis,” Pill said. “It remains premature to declare victory over the unacceptably higher rates of inflation we have seen recently.”
(Updates with market expectations in sixth paragraph.)
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