Interest rates: Bank of England chief economist hints at 'significant' November rise
Huw Pill, the Bank of England's (BoE) chief economist, has said that a "significant" response is required to fight inflation and fiscal stimulus, hinting at aggressive action by the monetary policy committee next month.
Speaking at the Scottish Council for Development and Industry in Glasgow on Wednesday, Pill, who joined the MPC just over a year ago, also reiterated the Bank’s commitment to returning inflation to its 2% target.
“At present, I am still inclined to believe that a significant monetary policy response will be required to the significant macro and market news of the past few weeks. But I will see when we get to November how events have evolved in the meantime,” he said.
It comes as the UK central bank has already hiked interest rates at each of its last seven meetings, with the bank rate currently at 2.25%.
It has also brought quantitative easing (QE) to an end, and started to run down its holdings of gilts accumulated for monetary policy purposes.
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“We have moved away from the forward guidance that signalled bank rate would remain floored at its effective lower bound that met me when joining the MPC last year,” he said.
“In its place, the MPC has emphasised that its policy decisions are driven by the evolution of the data, while signalling a willingness to respond more forcefully to signs of greater persistence in inflation, should that prove necessary.
“At every juncture, the MPC has remained committed to a medium-term view that stabilises inflation around the 2% target.”
Pill also welcomed the recent independent forecasts from the Office of Budget Responsibility (OBR) after the chancellor shunned them in his mini-Budget last month.
The finance minister’s £45bn of unfunded tax cuts sent markets into turmoil, and the pound tumbling to its lowest level against the dollar.
However, the OBR forecasts will now be released alongside Kwasi Kwarteng’s fiscal plans on 31 October.
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“It is welcome that the role played by the Office for Budget Responsibility in scrutinising the government’s fiscal plans will be resumed in the forthcoming budget statement,” he said on Wednesday.
“Its independent, external scrutiny of the outlook for the public finances will bolster the credibility of the process, thereby helping to add stability in what is a volatile environment at present.”
The Oxford graduate also added that the government must ensure its tax cuts and higher spending do not threaten public finances over the long-term, or the effectiveness of the Bank of England.
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In recent weeks, Threadneedle Street has been forced to launch a £65bn bond-buying programme to calm markets.
It stepped in for the third time in a week on Tuesday to try to boost investor confidence, and prevent a fire sale of government debt. However, Andrew Bailey warned last night, that this support was set to end on Friday, despite calls for it to be extended
Addressing the recent inventions, Pill said: “In the face of dysfunction that has emerged in some specific market segments in recent weeks, the Bank is conducting a set of temporary and targeted financial stability operations to support the gilt market.
“Their goal has been to permit an orderly deleveraging of positions held by so-called liability driven investment (LDI) funds, which became vulnerable in the volatile market conditions we have seen of late.
“In taking this action, the Bank has sought to prevent the emergence of a self-sustaining vicious spiral of collateral calls, forced sales and disappearing liquidity from emerging in a core segment of the financial markets. Restoring market functioning helps reduce any risks from contagion to credit conditions for UK households and businesses.”
