Business & Economy

BoE’s Pill sees ‘open question’ on timing of first rate cut

Chief Economist and Executive Director for Monetary Analysis and Research at the BOE, Huw Pill meets with reporters in London

By David Milliken and Andy Bruce

LONDON (Reuters) -Bank of England Chief Economist Huw Pill dampened expectations of an August interest rate cut on Wednesday as he focused on strong price pressures in Britain’s economy and said the timing of such a move was an “open question”.

Pill said services inflation and wage growth showed “uncomfortable strength” despite headline inflation falling to the BoE’s 2% target in May, and it was unlikely that June inflation figures due next week would change the big picture.

Similarly, uncertainty about the outlook for currently strong levels of wage growth was unlikely to clear up soon.

“I think it’s still an open question on whether the timing for a rate cut is now,” Pill said in an unscripted conclusion of a speech to the Asia House think tank in London.

Investors reined in their bets on the BoE cutting rates for the first time since the COVID pandemic swept the world in 2020.

Rate futures pointed to a 50% chance of a quarter-point cut to Bank Rate on Aug. 1 – the date of the BoE’s next scheduled monetary policy announcement – after Pill’s comments, down from 62% on Tuesday.

Sterling hit its highest level against the U.S. dollar in about a month, jumping by around a third of a cent as he spoke.

In the published text, Pill struck an equivocal tone on the evidence of inflation pressures in the economy. While citing the strength of domestic price growth, he added that the data suggested it had been contained.

“(They) may be starting to revert towards levels that are more consistent with the achievement of the inflation target,” Pill said.

He said the BoE’s “when-rather-than-if” characterisation of prospective Bank Rate cuts still seemed appropriate, but there was still work to do in dampening domestic price pressures.

Pill warned that there was a more inflationary scenario where higher unemployment and reduced job vacancies did not translate into slower wage growth, due to mismatches in the labour market.

BoE decisions on interest rates needed to take into account a range of possible scenarios, he added.

The comments were the first from Pill in more than six weeks as the BoE went into a quiet period in May in the run-up to last week’s parliamentary elections.

Pill, who is seen as a centrist on the Monetary Policy Committee, voted with the majority of his colleagues last month to keep interest rates at a 16-year high of 5.25%.

On Monday, outgoing MPC member Jonathan Haskel said he was not yet ready to vote for rate cuts. Catherine Mann, another external MPC member, is due to speak at 1530 GMT.

(Additional reporting by Suban AbdullaWriting by Andy Bruce and William Schomberg; Editing by Toby Chopra)


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