Bank of England Chief Economist Huw Pill said an expected rise in inflation this year would probably not lead to second-round price pressures but stronger-than-expected wage growth seen to date was a reason for caution and care in cutting borrowing costs.
“Overall wage indicators have been easing but nonetheless perhaps there is some plateauing at rates that are a little bit higher than we had expected, and maybe it’s still a little bit higher than we would see as consistent with achievement for the inflation target,” Pill said in an online presentation to businesses on Friday.
“I think that is a reason for caution, for carefulness in the way we proceed with removing monetary policy restriction and cutting bank rate.”
Pill voted with the majority of the Monetary Policy Committee to cut the central bank’s main interest rate by a quarter point to 4.5% from 4.75% on Thursday, but two members voted for an even larger 50 basis point reduction.
The central bank halved its growth forecast for this year to 0.75% and forecast inflation would rise to around 3.7% in the third quarter of the year, not returning to its 2% target until late 2027.
BoE Governor Andrew Bailey said he expected to be able to cut rates further, but that the central bank would take a “gradual and careful” approach.
Minutes of February’s policy decision showed that some of the policymakers who backed the quarter-point rate cut thought the central bank should be “cautious” about cutting rates further due to the risk that higher inflation could be sticky.
(Reporting by Suban Abdulla)
