Bank of England Chief Economist Huw Pill reiterated that there is still limited evidence of second-round effects from higher energy prices. He stressed that the recent decision to raise interest rates was pre-emptive in nature, aimed at containing inflationary pressures before they become more persistent.
Pill acknowledged that there were different views within the MPC. While activity and employment are still adding to demand at the margin, higher energy prices are creating pipeline inflationary pressures that the Bank needs to monitor.
He stressed that the BoE is not planning to repeat the aggressive rate hiking cycle seen in 2022. He also pushed back against expectations for a predetermined policy path, saying nothing is baked in for interest rates next year and that the outlook is likely to become more uncertain from the spring. Importantly, Pill said that rates could remain on hold or even fall next year if economic growth were to stall. This is a rather dovish comment from a hawkish member.
Pill stressed that the BoE is trying to contain the risk of energy-driven inflation becoming entrenched without committing to an extended tightening cycle. More rate hikes will depend heavily on whether inflation pressures broaden and whether the economy can withstand the squeeze on businesses and households.
The market is currently pricing in a 50% chance of a rate hike in December and a total of 68 bps of tightening by the end of 2027. A lot will depend on the US-Iran developments and the incoming economic data.
This article was written by Giuseppe Dellamotta at investinglive.com.
Source: Investing Live - Central Bank
