In a significant move, the Bank of England executed its first interest rate cut in four years, lowering the rate from 5.25% to 5%. However, the central bank’s chief economist, Huw Pill, is now cautioning against a hasty return to lower rates, suggesting that the journey towards more accommodative monetary policy should proceed cautiously.
Pill expressed concern that there might be a premature expectation that inflation has fully subsided. “There may be a tendency to think inflation is back at target, so interest rates can go back to where they were. I think that’s a little bit quick,” he said, emphasising the need for prudence.
His comments echo the sentiments of BoE governor Andrew Bailey, who on Thursday highlighted the importance of not reducing rates “too far or too quickly”. Despite the recent rate cut, the caution reflects ongoing uncertainties, particularly persistent inflationary pressures within the services sector, which could suggest that underlying inflation has not yet been fully tackled.
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