Bank of England is cutting interest rates ‘too fast', warns its chief economist

Yahoo

20-05-2025

The Bank of England's (BoE) chief economist has warned it has been cutting rates too quickly, given the inflation outlook, but added that the path for interest rates remained 'downward'.
Huw Pill, who voted against the BoE's decision earlier this month to lower the base rate by 25 basis points to 4.25%, said: 'In my view, that withdrawal of policy restriction has been running a little too fast of late, given the progress achieved thus far with returning inflation to target on a lasting basis.'
'I remain concerned about upside risks to the achievement of the inflation target.'
In a speech entitled 'The courage not to act' at a briefing hosted by Barclays (BARC.L), Pill said he remained concerned about ongoing risks to the inflation target and questioned the appropriateness of the Bank's recent policy stance.
'I remain very concerned that the structural changes in price and wage-setting behaviour have increased the intrinsic persistence of the UK inflation process.
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'That not only makes inflation higher for longer in the aftermath of the pandemic and invasion-induced inflationary shocks than would otherwise have been the case. It also influences the appropriate bank rate response in pursuit of lasting achievement of the inflation target," he added.
The Bank's monetary policy committee (MPC) voted to cut interest rates in May by 25 basis points in a move aimed at supporting the UK economy amid growing uncertainty. But the decision was not unanimous. Pill joined three other dissenting members in opposing the cut.
Talking about his decision, he explained: 'As reflected in the voting record, my sense is that bank rate plateaued at slightly too low a level in 2023, and the MPC (monetary policy committee) started cutting bank rate slightly too early in 2024.
'To compensate, my starting point is that the pace of bank rate reduction should be 'cautious', running slower than the 25bp (basis points) per quarter we have implemented since last August.
'That requires a 'skip' in that quarterly pattern at some point. And I decided that the May meeting was an appropriate moment for that 'skip'.'
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Meanwhile, Swati Dhingra, another member of the MPC, advocated for a more aggressive easing at the same meeting, voting for a 50 basis point cut. Known for her dovish stance, Dhingra said she aimed to make a clear statement about the economy's trajectory.
She told the Financial Times' Economics Show: 'I get to pick times when I want to be able to make a more categorical statement about where I think the economy is headed, and I can't use that over and over again.
'When I voted for 50 basis points, it was a levels argument. That if you look at the longer-term average, we were going to be, for a very long period, averaging around 450 basis points.'
She said votes for bigger moves in rate levels 'get taken seriously only when they happen once in a while'.
The Bank's nine-person MPC voted by a majority of five-four to reduce rates by 0.25 percentage points. Two members of the MPC, Swati Dhingra and Alan Taylor, wanted to push through a bigger 0.5 percentage point reduction to interest rates.
Another two members, Catherine L Mann and Huw Pill, preferred to keep rates unchanged at 4.5%.