Bank warned to be ‘cautious’ over further rate cuts to interest rates, top official warns_Nhy
The Bank of England must be ‘cautious’ about further cuts to interest rates, a top official has warned.
Huw Pill, the Bank’s chief economist, said the battle against inflation was not yet ‘job done’ and that a slowdown in the speed of price increases ‘may be not quite as strong as we had previously thought’.
It comes after the Bank slashed growth forecasts for the UK economy raising fears of a new era of ‘stagflation’.
Mr Pill’s comments will provide little comfort for struggling British borrowers and mortgage payers, who achieved mild relief on Thursday when the bank cut interest rates to 4.5 per cent from 4.75 per cent, the lowest level since June 2023.
He said that while more interest rate cuts ‘would be expected’, the bank would need to ‘maintain some restriction’ in order to ‘squeeze out’ any remaining problems which could keep inflation above its target of 2 per cent.
‘Slower than expected pace of disinflation means that we need to continue to be gradual in our removal of restriction,’ he said in an online presentation to businesses.
The Bank warned on Thursday that cost-of-living pressures were once again on the rise forecasting inflation of 3.7 per cent this year as higher energy pills strained household budgets.
It also slashed its prediction for UK growth this year by half to just 0.75 per cent.
Huw Pill, the Bank’s chief economist, said the battle against inflation was not yet ‘job done’. Picture: Bank of England
The downgrade was another blow to Chancellor Rachel Reeves as she struggles to balance the book
The downgrade was another blow to Chancellor Rachel Reeves as she struggles to balance the books and get Labour’s growth plans back on track following a fierce backlash from her Budget in October.
The Bank of England’s assessment has sparked fears the UK could enter a new era of ‘stagflation,’ when an economy suffers from little to no economic growth alongside high inflation.
The phenomenon ravaged Britain in the 1970s on a larger scale which saw inflation top 20 per cent while the economy shrank.
While inflation has fallen from a peak of 11 per cent reached in the second half of 2022, hitting 2.5 per cent in December, it is expected to rise again this year.
Mr Pill said a ‘further upward blip’ in inflation was expected, pointing to higher energy costs as well as rising bus fares, school fees and water bills.
On Thursday, seven members of the Bank’s rate-setting Monetary Policy Committee voted for the 0.25 per cent reduction in interest rates while two others supported a steeper cut of 0.5 per cent.
He also pushed back against the argument for sharper rate cuts. ‘Given what we know now, at least for me, the “gradual and careful” would not lead us to be rushing to the more sizeable moves in interest rates, even as some of our colleagues do,’ he said.
