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The Bank of England should be wary of cutting rates too soon after years of above-target inflation, a senior policymaker has warned, as he reiterated the need for “restrictive” monetary policy.
The pound rose against the dollar after Huw Pill, the BoE’s chief economist, said in a speech that a reduction in interest rates from 5.25 per cent was “somewhat closer” but that falls in headline inflation were not enough reason in themselves to ease policy.
“After several years of above target inflation rates and given the threat of persistent inflation dynamics becoming embedded in expectations, in my view there are greater risks associated with easing too early should inflation persist rather than easing too late should inflation abate,” Pill said on Tuesday.
“This assessment further supports my relatively cautious approach to starting to reduce Bank Rate.”
Pill’s words suggest he is not yet ready to vote for a reduction in interest rates as the Monetary Policy Committee prepares to meet the week after next.
His assessment of inflation risks contrasts with Dave Ramsden, BoE deputy governor, who said last week that inflation could hold around the bank’s 2 per cent target for the next three years.
The pound traded 0.3 per cent higher against the US dollar at $1.238.
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