By David Milliken and Suban Abdulla
LONDON, Feb 6 (Reuters) – Bank of England Chief Economist Huw Pill said on Friday that the central bank should not be too reassured by the likely return of inflation to near its 2% target in the second quarter of this year as much of this will be due to one-off factors.
Pill – who voted against a rate cut this week – said just as the BoE looked through a temporary inflation hump in 2025 that partly reflected one-off regulatory measures, it should not put too much weight on a dip in inflation to close to 2% which is forecast for April when lower energy prices take effect.
“There is also a risk that we draw too much comfort from the ditch in short-term inflation dynamics created by the downside fiscal measures announced last November, and we lose a little bit of a track of … the inflation that is going to be the lasting dynamic in price developments that will still be there once all these one-off effects fade out,” he said.
Some of the easing in inflation is likely to come from measures included in finance minister Rachel Reeves’ budget which was announced in November.
Speaking to businesses, Pill said monetary policy would need to continue to address any persistence in inflationary pressures.
Pill was part of the 5-4 majority among the BoE’s Monetary Policy Committee members who voted to keep rates on hold at 3.75% this week, narrowly avoiding a repeat of December’s quarter-point cut.
In policy minutes published on Thursday, Pill said the BoE had been cutting rates too fast and that he was concerned that future inflation pressures would make it hard for inflation to stay durably at target after it falls later this year.
Pill said on Friday it was good that the BoE’s latest survey of businesses showed they expected to raise pay by 3.4% this year, down from last year, but that this was still slightly too high for inflation to stay at 2%.
“Although we are getting closer, that disinflation process is still not complete,” he said.
Pill also noted that the labour market had “eased quite significantly” in recent months, potentially reflecting last year’s rise in employment taxes and the minimum wage as well as the greater use of artificial intelligence in some sectors.
(Reporting by David Milliken and Suban Abdulla)
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