Yahoo Finance Interest rate hikes slowing UK inflation, says Bank of England's Huw Pill
Huw Pill, the Bank of England’s (BoE) chief economist, has said he sees growing evidence that interest rate hikes are slowing down UK inflation.
Speaking at a briefing for the Bank’s agents about Thursday’s interest rate decision and monetary policy report, he said Threadneedle Street’s consecutive run of rate hikes was bringing down the cost of borrowing.
UK inflation dropped to a 15-month low of 7.9% in the year to June — the lowest reading since March 2022. Economists predicted that the rate would dip to 8.2% from 8.7% in both April and May.
But while the rate of inflation is slowing, it is still nearly four times more than the BoE’s 2% target, and higher than in other advanced economies.
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"The monetary policy committee (MPC) is committed to achieving its target," Pill said during the presentation. "There are increasing signs that the policy actions it's taken over the last 18 months are working in pursuit of that target."
He added that “MPC analysis focused on inflation persistence” and that “higher rates are helping curb inflation and pay”.
“We are trying to balance the risks of doing too little, but it is possible that we do too much,” he said.
It comes as the Bank increased interest rates by 0.25% to 5.25% on Thursday, its 14th consecutive hike. The move, which was widely expected by economists, means UK interest rates are now at a fresh 15-year high.
Financial markets now expect interest rates to peak at 6.5% after recent data showed record wage growth, however, some predictions have since fallen to a pinnacle of 5.75% after a sharp decline in inflation.
Analysts at Nomura said the hike on Thursday was “consistent with our existing view that the Bank will raise rates further, and we stick with our view of another 25bp hike in September and a final move up in November — for a peak of 5.75%.
They said: “Rate cuts seem unlikely for some time thereafter, as Mr Bailey indicated in the post-meeting press conference.”
The Bank added that it was forecasting that inflation will hit its 2% target in the second quarter of 2025.
Read more: Bank of England raises UK interest rates to new 15-year high
"Our job is to make absolutely sure that inflation falls all the way back to the 2% target, and stays low," BoE governor Andrew Bailey said.
He added: "We do recognise, and I think it’s very important to say, that inflation has a very serious effect particularly on those least well off.
"But I will emphasise that the economy is more resilient. Yes unemployment has gone up a bit, but it is still at historically low levels. We haven’t experienced a recession and we’re not forecasting one."
Watch: How does inflation affect interest rates?
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