Bank of England chief economist Huw Pill has cautioned his fellow policymakers against becoming "complacent" about the cost of living, as he defended his recent votes to increase interest rates. Pill has been the sole dissenter on the Monetary Policy Committee (MPC), voting to raise rates to 4% at the last two meetings. In April, he was the only member to vote for a hike, but was joined by Megan Greene in June.
Pill's Concerns Over Inflation
Pill's stance is driven by inflation remaining above the Bank's 2% target. The Consumer Prices Index (CPI) stood at 2.8% in April, unchanged from March. He argued that historically, inflation one percentage point above target would have been seen as "problematic," adding: "I think it should be seen as problematic, because our mandate is very clear; inflation at 2% at all times." He warned that after inflation peaked at 11%, there is a risk of policy discussion becoming, "oh inflation at 3% is not so bad."
Pill told the Press Association that policymakers "should not be complacent" about current inflation, which could rise further due to surging oil and gas prices amid the US-Israeli conflict with Iran. He expects consumer-facing businesses to respond to increased costs partly by raising prices.
Personal Difficulty in Dissenting
Pill emphasised that his dissenting votes were not taken lightly. "I would emphasise that I'm not dissenting because I want to get my name in the papers, or I want to be a troublemaker on the committee," he said. "Over my time on the MPC, I've probably, if anything, erred on the side of supporting the institutional view, even when I had some scepticism about it. It's not an easy choice for me to dissent at a personal level."
Monetary Policy and Rate Outlook
Pill warned of "underlying inflation dynamics" in the UK economy and argued that monetary policy decisions may have "fuelled some of this strength and momentum." He stated, "I think probably, on balance, it hasn't been restrictive enough over the last few years," suggesting that rates may have been cut too quickly. Interest rates have gradually fallen from a peak of 5.25% in summer 2024 but have been held at 3.75% for six months, primarily due to the outbreak of the Iran war in late February.
Bank of England Governor Andrew Bailey was among the majority voting to keep rates unchanged in June. He noted after the meeting that "higher energy prices of the past four months mean there's already some inflationary pressure in the pipeline," even after a US-Iran peace deal saw oil prices fall back towards pre-conflict levels.
Future Expectations
Economists and the Bank itself expect the cost of living to rise throughout 2026 as higher energy prices pass through the economy, though not as sharply as initially feared. Many economists now predict interest rates will remain unchanged for the rest of the year, though some traders still anticipate a possible rate hike before the end of 2026.
"The world is becoming more uncertain and becoming more complex," Pill concluded. "What we can guarantee is that monetary policy is not adding to uncertainty, and I think that is where we should keep the focus."
