Bank of England’s Caution on Interest Rate Cuts

LONDON (Reuters) – Bank of England Chief Economist Huw Pill emphasized the necessity of a gradual approach to potential interest rate cuts, following comments from Governor Andrew Bailey suggesting a more aggressive reduction in borrowing costs.

“While further cuts in Bank Rate are anticipated if the economic and inflation outlook remains stable, caution is essential to avoid cutting rates too quickly or excessively,” Pill stated in a speech at the Institute of Chartered Accountants in England and Wales on Friday.

Pill noted the importance of a measured withdrawal from restrictive monetary policies. The BoE’s Monetary Policy Committee is set to review interest rates in November, following an initial cut in August – the first in over four years – and a pause in September.

In the Guardian interview, Bailey indicated that a more aggressive strategy could be adopted if favorable inflation news emerges. Following Bailey’s remarks, the value of Sterling dipped but rebounded slightly after Pill’s speech.

Pill expressed ongoing concern about potential structural changes in the UK economy that may keep inflation elevated, emphasizing the need for vigilance regarding inflation persistence. He identified rising service sector inflation and wage growth as significant concerns:

“I worry more about inflation than what the MPC’s published forecasts suggest.”