Pill Advocates for Prompt Rate Hikes to Preempt Inflationary Pressures

Bank of England Chief Economist Huw Pill recently suggested that raising interest rates would help mitigate potential future inflationary pressures. Speaking to the Edinburgh Chamber of Commerce, Pill emphasized that a prompt increase in interest rates could 'head-off some of the potential insidious 'catch up' nominal dynamics that threaten to make temporary departures of inflation from target more persistent.'

Pill and two other Monetary Policy Committee members voted to raise interest rates in July, but their proposal was outvoted by colleagues who preferred no change. Investors are now pricing a 15% chance of a quarter-point rate hike at the MPC's next meeting this month, although the probability rises to over 70% for the subsequent meeting in November.

Pill's comments aim to reassure that raising interest rates need not be the start of a prolonged and aggressive series of increases. The central bank is closely monitoring the impact of the Iran war on long-term inflation pressures and will make adjustments accordingly.