Pill Warns UK Inflation Risks Creeping Back Up Amid Energy Price Spike
Bank of England Chief Economist Huw Pill has expressed concerns about the potential for UK inflation to rise following an energy-price spike linked to the US-Iran conflict. Despite the central bank holding interest rates steady with a 6-3 vote, Pill warns that higher fuel and utility costs could trigger 'second-round effects', leading to companies increasing prices and workers demanding higher pay.
The Bank of England is cautious about these potential effects, which can move slowly but have the power to keep inflation elevated. Pill notes that there hasn't been a 'substantial deanchoring' from the bank's 2% inflation target, meaning people haven't lost faith in the central bank's ability to bring down inflation.
The split vote within the Bank of England was more pronounced than in June, with three rate-setters advocating for a quarter-point hike. However, Governor Andrew Bailey emphasized that the bank is not leaning towards another increase at this time. Most economists polled by Reuters also do not expect a hike, but market interest rates may reflect the risk of higher inflation forcing action later.