Yahoo Finance Bank of England’s chief economist urges caution over raising rates
Bank of England’s chief economist Huw Pill has called for a cautious approach to raising interest rates, adding that the outlook remains unclear given uncertainties around wages and energy prices.
Pill said it was “better to adopt a more measured and data-dependent approach, which learns from how the economy responds to each step taken, rather than pre-commits to a concept surrounded by uncertainty”.
The bank chief argued that with the situation as it is today, “a case can be made for a measured rather than activist approach to policy decisions.”
"I worry that taking unusually large policy steps may validate a market narrative that bank policy is either foot-to-the-floor on the accelerator, or foot-to-the-floor with the brake."
Read more: Bank of England increases interest rates to 0.5% amid rising inflation
Still, the member of the Monetary Policy Committee refused to rule out interest rate increases of more than 25 basis points.
Pill said that if inflationary pressures ease, interest rates could stay lower for longer. But if there are signs of energy prices driving up wage settlements, the bank could tighten policy faster.
“Since the outlook for wages and energy prices is uncertain as I have emphasised, then the prospective path for the bank rate is also uncertain,” Pill said in a speech to Britain’s Society of Professional Economists.
“Were we to see evidence of second round effects in wage and cost developments, a tighter policy than otherwise might be required.”
He was among the five members of the nine-strong MPC who voted last week to raise the interest rate to 0.50% from 0.25%. The other members pushed for a hike to 0.75%.
Read more: UK inflation to peak at 7% in April as household inequalities widen
On wages, Pill says the Bank now sees underlying wage growth approaching 5% this year, as the labour market continues to tighten.
The governor of the Bank of England, Andrew Bailey, sparked serious backlash after telling Britons they should not ask for a pay raise this year.
The central bank has warned that inflation could soon surpass 7%, almost four times its target of 2%.
Watch: What is inflation and why is it important?
