The Central bank of England is keen to hike interest rates more aggressively if required, says Huw Pill
The Bank of England (BoE) will hike interest rates more aggressively to address rising living costs if there are signs of inflation becoming relentlessly higher for longer than anticipated, its chief economist has cautioned.
Huw Pill said Threadneedle Street was keen to take “forceful” action if there were signs of a wage-price spiral taking a grip or if companies persisted in increasing their prices.
The central bank hiked interest rates by a quarter of a percentage point on Thursday to 1.25%, while cautioning that inflation was expected to reach above 11% later in the year as rising household energy bills and the soaring cost of a weekly shop hit families across the UK.
In comments indicating that the Bank was willing to proceed with a 0.5-point hike in the future, Pill told Bloomberg TV:
“If we see greater evidence that the current high level of inflation is becoming embedded in pricing behavior by firms, in wage-setting behavior by firms and workers, then that will be the trigger for this more aggressive action.”
Pill maintained that the central bank had not acted too late to combat the highest rates of inflation for forty years, despite increasing its forecast for consumer price inflation for the fifth consecutive time on Thursday.
The member of the Bank’s monetary policy committee (MPC) voted mostly for a .25-point interest rate increase on Thursday, while three of his colleagues who are external members of the MPC supported a larger half-point rise in a 6-3 split.
The US Federal Reserve increased interest rates by 0.75 points on Wednesday, the largest single increase since 1994, amid rising concerns over the strength of inflation in the world’s largest economy. Pill stated:
“We started earlier than some other central banks. Cumulatively, since we started (in December), we’ve done as much as other central banks have done more quickly in recent times.”
The Bank is experiencing severe criticism from cabinet ministers as Boris Johnson’s government stumbles in the polls at a time when British households are going through the biggest annual drop in living standards since the 1950s.
Letters exchanged between Andrew Bailey the Bank’s governor and Rishi Sunak, after Thursday’s rate hike showed an apparent change in tone, indicating the tensions between Threadneedle Street and Westminster. Sunak wrote:
“It is imperative to bring inflation back down to the target and to keep it anchored there.”
In comparison to often unremarkable letters exchanged between the central bank governors and chancellors – needed when inflation rises more than one percent above its 2% target – the chancellor warned that he forecasted action.
He wrote in his letter to Bailey:
“I know and expect that you and the other members of the MPC will take the action necessary to get inflation back on target and ensure inflation expectations remain firmly anchored.”
Since changes were made under Gordon Brown in 1997, the central bank has been actively independent.
