Cut to interest rates still ‘some way off’, says Bank of England economist

The Bank of England’s top economist has said he believes a cut to UK interest rates is still “some way off”.

Huw Pill, chief economist at the central bank, also warned that the economy is currently weak and said policymakers should not feel a “false sense of security” if inflation falls below the 2% target rate in the coming months.

Mr Pill, who has been in the role since 2021, made the comments during a speech at Cardiff University.

The UK interest rate is currently at 5.25% after 14 increases, made in an effort to thwart rampant inflation, took it to the highest level since the financial crisis.

Chief economist of the Bank of England Huw Pill
Chief economist of the Bank of England Huw Pill (Bank of England/PA)

Economists and banks have widely predicted that the Bank of England’s monetary policy committee could opt for its first cut since the start of the Covid-19 pandemic in the first half of this year.

However, Mr Pill became the latest Bank of England rate-setter to appear cautious about potential future rate cuts.

“In my baseline scenario the time for cutting Bank Rate remains some way off,” he said.

“I need to see more compelling evidence that the underlying persistent component of UK CPI (Consumer Prices Index) inflation is being squeezed down to rates consistent with a lasting and sustainable achievement of the 2% inflation target before voting to lower Bank Rate.”

The rate cuts have helped to move the rate of UK inflation closer to 2%, the target level set by the Government.

UK interest rates
(PA Graphics)

It was most recently recorded at 4% in January, the same as the previous month.

Nevertheless, Mr Pill stressed that meeting the inflation target would be “good news” but cautioned policymakers not to take their eyes off the ball.

He said: “I expect to see headline consumer price inflation continue to fall in the coming months, and likely to approach or even fall below the 2% inflation target this spring. Of itself, that is good news.

“But the drivers of this decline in annual headline inflation are a combination of base and external effects.

“We need to guard against being lulled into a false sense of security about inflation developments over the medium term by the mechanical effects of high monthly inflation a year ago dropping out of the calculation of annual rates and/or the impact of downside surprises in international commodity prices, notably for energy and food.”