Pill Pushes for Rate Hike to Prevent Persistent Inflation

Bank of England Chief Economist Huw Pill is signaling that an interest rate hike could be necessary to prevent inflation from becoming more persistent due to the impact of the Iran war. He believes a prompt increase in rates would limit the risk of steeper action later to keep inflation under control.

Pill's comments come as market pricing shows over 15% probability of a quarter-point rate hike at the upcoming Monetary Policy Committee (MPC) meeting and more than 70% for November. The MPC remains divided, with Pill and two other members favoring an immediate rate hike while others await further evidence on how the Iran war affects inflation pressures.

Pill suggests that raising the Bank Rate now could prevent nominal 'catch-up' dynamics from turning a temporary overshoot in inflation into a longer-lasting problem. He emphasizes that earlier action could head off this issue, reducing the need for a prolonged tightening cycle later.