Interest rate cuts are 'closer', but risks of reducing early - Bank economist

The bank’s chief economist, Huw Pill has said the Bank is some way off cutting interest rates

The Bank of England’s chief economist, Huw Pill, has indicated that interest rate cuts are “somewhat closer” than they were last month.

Despite this, he cautioned that the economic outlook has “not changed substantially”, and there are risks associated with reducing rates prematurely. UK interest rates currently stand at a 15-year high of 5.25%, having been maintained at this level for the past five meetings of the Bank’s monetary policy committee.

There has been recent speculation that the central bank could begin to lower rates, although many analysts and investors revised their rate cut predictions last month after March inflation dipped slightly less than anticipated. The Bank of England’s rate setters have expressed caution about moving too quickly to reduce rates.

In March, Mr Pill stated that the Bank was “some way off” cutting interest rates. However, in a recent speech in London, he said: “The combination of little news and the passage of time have brought a bank rate cut somewhat closer.” He added that the steady decline in inflation means “the outlook for UK monetary policy in the coming quarters has not changed substantially since the beginning of March”.

Consumer Price Index inflation fell to 3.2% in March and is expected to move closer to the Bank’s 2% target rate in April due to another drop in energy prices. However, Mr Pill highlighted the risks of a hasty reaction from the Bank in cutting rates amidst signs of persistent service and wage inflation.

He said: “After several years of above target inflation rates and given the threat of persistent inflation dynamics becoming embedded in expectations, in my view there are greater risks associated with easing too early should inflation persist rather than easing too late should inflation abate. This assessment further supports my relatively cautious approach to starting to reduce bank rate.”