Bank of England Warns Inflation Risks Ahead Amid Ongoing Conflict

The Bank of England's chief economist, Huw Pill, has warned that a 'wait and see' approach to setting interest rates amid the ongoing Iran conflict could lead to a fresh wave of inflation.

Pill, who is widely viewed as one of the most hawkish rate-setters on the Monetary Policy Committee, made his comments in Scotland last week. He noted that while second-round effects from the conflict are unlikely to be as severe as at the start of Russia's invasion of Ukraine, officials may still find themselves playing catch-up without proactive action.

Pill emphasized the need for clear and decisive action at the Bank's next decision on September 17th. He stated that a 'wait-and-see' approach could lead to a status quo bias in setting interest rates, which would make monetary policy fall behind-the-curve in addressing emerging inflationary risks.

In July, Pill was one of three members of the MPC to vote for a central interest rate increase by 25 basis points. However, the panel ultimately chose to keep rates unchanged at 3.75 per cent. In minutes published alongside this decision, Pill warned that an 'insidious' wage-price spiral scenario could be unleashed if policymakers keep interest rates on hold for too long.