4 godzin temu
The Bank of England's chief economist has warned of an increased risk of "persistent inflation" despite the central bank's decision to cut interest rates this week. Huw Pill stressed that while there has been "progress" in bringing inflation down recently, new concerns could affect future rate decisions.
His comments came during a briefing following the Bank's latest interest rate decision on Thursday. The rate-setting committee voted to reduce the base interest rate to 4% from 4.25%, marking its lowest level for more than two years.
Inflation concerns persist despite cuts
The Bank has maintained elevated interest rates to bring inflation sustainably down to the Government's 2% target rate, after inflation spiked dramatically in 2022. Latest figures from the Office for National Statistics showed UK consumer price index inflation rose to 3.6% in June.
On Thursday, the Bank predicted inflation is likely to rise to 4% in September before steadily falling and stabilising around 2% in 2027. However, Pill indicated that heightened risks regarding inflation could affect the pace of future rate cuts.
External forces threaten price stability
"There is some shift in the balance of risks on inflation," Pill said. "There is a risk of spillover into more persistent inflation. When inflation is high due to external forces, we need to be aware of the risk they might affect domestic price-setting."
The Bank indicated that recent increases to the national minimum wage and National Insurance contributions had partly contributed to a recent uptick in food prices. These domestic factors are adding to concerns about inflation becoming entrenched in the economy.
No set path for future rates
Pill stressed the Bank will continue to act to sustainably bring down inflation but emphasised there is "no set path" for interest rates. "Our mandate is that we will get inflation to 2%, that's the target, on a sustainable rate," he said. "We will do whatever we need with the Bank rate to do that."
Financial markets are currently expecting one more rate cut this year, followed by another cut next year. Interest rates are likely to stabilise close to 3.5%, according to market expectations.
(PA/London) Note: This article has been edited with the help of Artificial Intelligence.
