BoE’s Pill Warns: High Rates May Stick to Tame Inflation

Bank of England Chief Economist Huw Pill has signaled that interest rates may need to remain high for longer than previously expected to tackle persistent inflation. Speaking at a recent conference, Pill warned that inflationary pressures could prove more stubborn, requiring a prolonged period of tight monetary policy to bring inflation back to the 2% target. He emphasized that recent projections showing inflation returning to target by early 2027 should not be interpreted as a cue for imminent rate cuts.

The Bank’s internal debate reflects a broader split among policymakers. While Pill and other senior figures urge caution, Deputy Governor Clare Lombardelli and Monetary Policy Committee (MPC) member Megan Greene have also voiced concerns about premature easing. Lombardelli pointed to the still-elevated wage growth of 5.9% and Greene noted persistent service inflation and rising inflation expectations as signs that underlying price pressures remain too strong to warrant cuts just yet.

This divergence in views highlights the Bank of England’s challenge: balancing the need to control inflation without stifling economic growth. While some members argue for maintaining high rates to prevent inflation from becoming entrenched, others worry about the potential impact on businesses and households. The Bank’s next decisions will be closely watched as they attempt to steer the UK economy through a period of uncertainty.