Bank of England Chief Economist Huw Pill said on Friday that the degree to which monetary policy is restraining demand is increasingly uncertain. Speaking at an event hosted by Santander Bank in London, Pill described the current stance of policy as still restrictive but harder to quantify than before.
"We do still have some restriction in the monetary policy stance. That level of restriction is more ambiguous now, and perhaps there’s more ambiguity about the extent of restriction than there is ambiguity about the incompleteness of the disinflation process to target," Pill said.
Pill, regarded as one of the more hawkish members of the Bank’s Monetary Policy Committee, joined the majority in voting to keep interest rates unchanged at the committee’s February 5 meeting.
He warned that inflation is converging on the Bank’s 2% target more slowly than the central bank would like and pointed to wage settlements as a source of concern. In his remarks, Pill set out a baseline view on the near-term profile for inflation once a temporary fiscal effect is stripped out of official forecasts.
"When we look at where we are now, short of something happening, underlying inflation is going to be 2.5% once we take out that half percentage point impact from the budget out of the forecast we have for April, May," he said.
While asserting that the disinflation process is "intact," Pill described it as "incomplete," and he made clear that monetary policy still has a role to play in finishing that process. "In order to complete that process monetary policy has a part to play. So we do need to retain some restrictiveness in policy until that process is complete," he said.
Pill noted signs on core inflation: after a stall in mid-2025, core inflation "does now seem to be falling again, and crucially, is forecast to fall pretty much to the 2% target over the next few months."
On labor-market dynamics, the chief economist rejected the notion that the economy is about to enter a sudden, non-linear downturn. He said unemployment patterns are partly driven by structural factors and cautioned against interpreting current dynamics as an imminent sharp rise in joblessness.
Regarding the policy response, Pill argued that maintaining interest rates at their present level should be sufficient to tame inflation, rather than moving to raise rates further, even though he judged current rates to be "a little bit too low."
Context and implications
Pill’s remarks underscore the Bank’s balancing act between allowing tighter policy to work through the economy and avoiding unnecessary escalation of rates. He stressed both the continued need for some policy restrictiveness and the growing ambiguity about how tightly policy is currently operating against demand.