"While we are making satisfactory progress in returning inflation to target, in my baseline scenario the time for cutting Bank Rate remained some way off."
- Huw Pill
The Bank of England's Huw Pill has said that "while we are making satisfactory progress in returning inflation to target... the time for cutting Bank Rate remain[s] some way off."
Pill, chief economist and executive director for monetary analysis and research at the Bank, is also a member of the Monetary Policy Committee. He voted to keep Bank Rate unchanged at the MPC’s February and March meetings.
In his latest speech, Pill said the MPC "needs to maintain restrictiveness in its monetary policy stance", adding that despite a decline in headline inflation, " the outlook for UK monetary policy in the coming quarters has not changed substantially since the beginning of March.
The Bank expects headline CPI inflation to fall close to its 2% target in the coming months. However, Pill said there is still "a reasonable way to go before I am convinced that the persistent momentum in underlying inflation has stabilised at rates consistent with achievement of the 2% inflation target on a sustainable basis".
Pill said that much of the recent decline in inflation is attributable to external developments that are "little influenced by the MPC’s policy decisions". "Seeing headline inflation fall towards target is therefore not a sufficient condition for withdrawing monetary policy restriction", he believes.
He said the MPC’s framework for assessing the inflation outlook "rightly remains more focused on the persistent component of consumer price inflation", stating that "the evolution of this persistent component will determine whether inflation returns to target on a lasting and sustainable basis".
As a result, Pill said the MPC will need to "maintain a degree of restrictiveness in its monetary policy stance... to squeeze the persistent component out of the system".
He added that after several years of above target inflation rates, "there are greater risks associated with easing too early should inflation persist rather than easing too late should inflation abate", stating that "this assessment further supports my relatively cautious approach to starting to reduce Bank Rate".
Pill concluded: "It is the evolution of the persistent component, which is influenced to a significant extent by the stance of monetary policy, that should drive policy decisions.
"While we are making satisfactory progress in returning inflation to target, in my baseline scenario the time for cutting Bank Rate remained some way off."
