Bank of England Chief Economist Huw Pill said on Thursday that a timely increase in interest rates could help prevent temporary inflation deviations from becoming entrenched, reducing the need for more aggressive future tightening.
Pill, speaking at an event hosted by the Edinburgh Chamber of Commerce, noted that raising the Bank Rate need not trigger a prolonged series of increases if implemented effectively. He warned that delaying action risks allowing nominal price dynamics to embed, making inflation deviations from the 2% target more persistent.
Market pricing reflects growing expectations of a rate hike, with interest rate futures indicating a little over 15% probability of a quarter-point increase at the Monetary Policy Committee’s meeting this month. The likelihood rises to more than 70% for the subsequent November meeting, according to Thursday’s pricing.
Pill’s remarks follow July’s vote, where he and two other MPC members advocated for a rate rise, but were outvoted by colleagues who favored maintaining the current stance pending clearer evidence of the Iran war’s long-term impact on inflation. The conflict has contributed to recent inflationary pressures, Pill noted, underscoring the need for vigilance in policy calibration.
