The Bank of England’s chief economist has warned his fellow policymakers over the risk of becoming “complacent” about the cost of living as he defended his recent calls to hike interest rates.
Huw Pill, a member of the central bank’s Monetary Policy Committee (MPC), has voted to increase rates to 4% at its last two meetings.
He was the only member of the nine-person committee to vote that way in April, and was joined by one other member, Megan Greene, in June’s vote.
The decision was fuelled by concerns about inflation being higher than the central bank’s 2% target level.
Mr Pill told the Press Association that policymakers “should not be complacent” about the current rate of Consumer Prices Index (CPI) inflation threatening to go up as a result of oil and gas prices surging amid the US-Israeli war with Iran.
The CPI rate was 2.8% in April, the same as March, official figures showed.
He said that in the past, inflation running one percentage point above target would have been seen as “problematic”, adding: “I think it should be seen as problematic, because our mandate is very clear; inflation at 2% at all times.
“I do fear a little bit that, because we saw inflation go to 11%, policy discussion becomes, ‘oh inflation at 3% is not so bad’.”
The top economist said it was not an easy decision for him to go against the grain.
He told PA: “I would emphasise that I’m not dissenting because I want to get my name in the papers, or I want to be a troublemaker on the committee.
Get a free fractional share worth up to £100.
Capital at risk.
Terms and conditions apply.
Go to website
ADVERTISEMENT
Get a free fractional share worth up to £100.
Capital at risk.
Terms and conditions apply.
Go to website
ADVERTISEMENT
“Over my time on the MPC, I’ve probably, if anything, erred on the side of supporting the institutional view, even when I had some scepticism about it.
“It’s not an easy choice for me to dissent at a personal level.”
Economists and the Bank itself are expecting the cost of living to rise throughout 2026 as higher energy prices pass through the economy, though not by as much as first feared.
Mr Pill said he would expect consumer-facing businesses to respond to increased costs partly by raising prices charged to customers.
He also warned over “underlying inflation dynamics” in the UK economy and argued monetary policy decisions may have “fuelled some of this strength and momentum”.
“I think probably, on balance, it hasn’t been restrictive enough over the last few years,” Mr Pill said, indicating he thinks rates may have come down too quickly.
Interest rates have been gradually coming down from a peak of 5.25% in the summer of 2024.
But they have been kept at the current level of 3.75% for half a year, primarily because the outbreak of the Iran war in late February put the brakes on any further cuts.
Bank of England’s governor Andrew Bailey was among the majority on the MPC preferring to keep rates unchanged earlier this month.
He said after the meeting that “higher energy prices of the past four months mean there’s already some inflationary pressure in the pipeline”, even after a peace deal had been agreed between the US and Iran, sending oil prices back down towards pre-conflict levels.
Many economists are now expecting interest rates to stay as they are for the rest of the year, although some traders in the financial markets still think a rate hike could be on the cards before the end of 2026.
“The world is becoming more uncertain and becoming more complex,” Mr Pill concluded.
“What we can guarantee is that monetary policy is not adding to uncertainty, and I think that is where we should keep the focus.”
