Market Analysis

Bank of England Chief Economist Huw Pill emphasized the need for caution when reducing interest rates, a day after Governor Andrew Bailey suggested the central bank could take a more aggressive approach to lowering borrowing costs.

Speaking on Friday at the Institute of Chartered Accountants in England and Wales, Pill stated, “While further rate cuts are likely if the economic and inflation outlook unfolds as expected, it is crucial to avoid reducing rates too much or too quickly." He added, “For me, this indicates a preference for a gradual easing of monetary policy restrictions.”

The Bank of England’s Monetary Policy Committee is anticipated to lower interest rates during its upcoming meeting in November, following its first rate cut in over four years in August and a subsequent pause in September.

In an interview with The Guardian published on Thursday, Bailey hinted that the central bank might act more decisively to reduce interest rates, especially if inflation continues to decline. His comments initially caused a sharp drop in the value of the British pound, though it rebounded slightly—rising by a fifth of a cent against the U.S. dollar—after Pill’s speech was released.

Pill expressed concerns over potential long-term changes in the UK economy that could maintain inflationary pressures, warning that this uncertainty warranted a cautious approach to rate cuts. He highlighted that inflation in the services sector and wage growth were “ongoing sources of concern.”

At the event, Pill also noted, “I am more worried about inflation than the forecasts published by the MPC suggest.”

Paraphrasing text from "Reuters" all rights reserved by the original author.