LONDON — Bank of England Chief Economist Huw Pill said on Friday that the British central bank might have to do more to bring down inflation, a day after the BoE raised interest rates for a 12th meeting in a row.
Pill said there was evidence of “a more favorable pattern in terms of the inflation outlook,” but that it was hard to know how fast inflation would come down as it was decades since it had last been so high.
“There may be more work to do,” he told businesses in an online presentation of the BoE’s latest policy decision and economic forecasts, which pencil in a slower decline in inflation than forecast by the central bank three months ago.
“To the extent that we see elements of greater persistence, there may be scope, at least to continue with the tightening of policy we have at the moment,” he added.
Consumer price inflation peaked in Britain in October at 11.1% – its highest in more than 40 years – and has been slower to fall than in the United States or the euro zone.
The BoE said on Thursday that food prices had increased more than it expected, with rises and falls in costs for farmers and supermarkets taking longer to affect consumer prices.
Pill said he did not want to signal which way the BoE would move interest rates on June 22, after its next scheduled meeting, as it would depend on inflation and wage data released between now and then.
“If we were to see more evidence that inflation is falling and most inflationary pressures are easing … then the outlook for interest rates would be different. So we’re not really offering a directional steer at the moment,” he said.
Financial markets price in a 65% chance that the BoE will raise its main rate to 4.75% next month from its current level of 4.5%, and see a greater than 50% chance that rates will reach 5% by September.
Governor Andrew Bailey criticized Pill on Thursday for previous remarks where he expanded on the BoE’s view that a surge in the cost of imports of natural gas and food had made Britain poorer overall, and stated that real-terms falls in wages were necessary to bring inflation under control.
Pill said on Friday that he recognized the pain caused to households by the squeeze in living standards. However, he saw little evidence that British businesses as a whole were to blame for high inflation, as overall profit margins had not risen, although some energy companies had clearly benefited.
“That does, a little bit, distinguish us from developments in other jurisdictions. In particular, in recent weeks and months there has been quite a lot of commentary about that in the euro area,” he said.
The European Central Bank’s chief economist, Philip Lane, has highlighted corporate profit margins as something that could narrow to bring down inflation. (Reporting by David Milliken Writing by William Schomberg Editing by Christina Fincher)