BOE Chief Economist Says U.K. Inflation Is Slowing, But Not Quickly Enough

Bank of England Chief Economist Huw Pill said consumer-price inflation in the U.K. is declining but at a slower rate than authorities hoped. Pill emphasized that much of the projected drop in inflation reflects government interventions to lower energy costs rather than deeper underlying economic improvements. He also stood with a majority of Monetary Policy Committee members in voting to keep the Bank's key interest rate unchanged.

Key Points

U.K. consumer-price inflation is declining, but more slowly than Bank of England officials had anticipated.
Much of the expected fall in inflation is attributed to government measures to reduce energy prices rather than underlying economic forces.
Pill voted with a 5-4 majority to hold the Bank's key interest rate steady, reflecting a split among Monetary Policy Committee members.

Bank of England Chief Economist Huw Pill said Friday that U.K. consumer-price inflation is falling, but not at the pace officials had hoped for. He described disinflation as ongoing, but added that the speed of the decline has been disappointing relative to expectations.

"Progress with disinflation is ongoing, but it’s not quite as rapid as we might have hoped," Pill stated.

Last week the central bank opted to hold its policy rate steady. In its announcement, the Bank projected that inflation would move toward its 2% target by April. Pill highlighted that a significant portion of the anticipated easing in inflation is tied to government action to reduce energy prices rather than to improvements in underlying economic drivers.

Pill has repeatedly advocated for maintaining higher interest rates compared with many of his colleagues on the Bank of England's Monetary Policy Committee. In the most recent vote on policy, he was among five members who chose to keep the current rate unchanged. Four other committee members expressed a preference for implementing another rate cut.

The comments underline two themes in the current policy debate: the tempo of disinflation and the source of downward pressure on consumer prices. By pointing to government energy measures as a key factor, Pill suggested that part of the path toward lower inflation rests on policy interventions rather than on a broad-based cooling of domestic price pressures.

That distinction is consequential for monetary policy deliberations because it bears on how persistent inflationary pressures might prove once temporary supports are removed or altered. The split within the committee during the most recent decision illustrates varying assessments among policymakers about the appropriate stance of rates given the evolving inflation picture.

For markets and economic participants, Pill's remarks reinforce the message that while headline inflation is trending lower, the pace and durability of that decline remain uncertain and continue to shape Bank of England deliberations.

Risks

Slower-than-expected disinflation could sustain higher borrowing costs for longer - impacts financial markets and borrowers.
Reliance on government energy measures to lower inflation means policy changes could reverse some progress - impacts energy prices and consumer cost of living.
Divergence among Monetary Policy Committee members introduces policy uncertainty, which could affect market expectations and investment decisions.

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Key Points

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