By David Milliken and Suban Abdulla

LONDON (Reuters) – Bank of England Chief Economist Huw Pill stated on Friday that an anticipated rise in inflation this year would likely not result in second-round price pressures. However, he noted that recent robust pay growth prompted “caution” regarding future interest rate cuts.

Pill expressed surprise at data revealing a 6% increase in private-sector wages, excluding bonuses, during the three months leading to November, calling this figure “a little bit aberrant.”

He observed that other wage measures seemed to have leveled off at a rate incompatible with returning inflation to the 2% target.

> “I think that is a reason for caution, for carefulness in the way we proceed with removing monetary policy restriction and cutting bank rate,” he remarked to businesses, following the BoE’s reduction of its key rate from 4.75% to 4.5%.

Pill voted with most members of the Monetary Policy Committee to cut the rate by a quarter-point, while two members advocated for a half-point reduction.

Pill mentioned that underlying domestic price pressures were moving positively:

> “Across the membership of the MPC, the story is one where disinflation is proceeding, interest rates can come down. The issue (is) of how far and how fast.”

The central bank on Thursday halved its growth forecast for this year to 0.75%, and predicted inflation to rise around 3.7% in the third quarter, not returning to its 2% target until late 2027.

Pill characterized this inflation increase as a “blip” due to one-off factors, less likely to provoke persistent inflation as the labor market is less constrained compared to late 2021 when prices last surged.

> “That blip probably will not have second-round effects … but there are risks to both sides and that’s something we have to remain quite vigilant about,” he cautioned.

BoE Governor Andrew Bailey indicated he anticipates further rate cuts, but emphasized a “gradual and careful” approach.

Minutes from February’s policy decision revealed that some policymakers who supported the quarter-point cut believed additional caution was necessary in reducing rates due to the potential for enduring higher inflation.