Bank of England chief wonk backs ‘steady handed’ approach to rate hikes
The chief wonk at the Bank of England today backed a “steady handed” approach to rate hikes despite a projected more than seven per cent inflation peak.
Huw Pill, the Bank’s chief economist and successor to Andy Haldane, said the Bank needs to hold fire on pursuing an “activist” approach to tightening monetary policy.
Pill’s comments come despite the Bank last week hiking its forecasts for price rises again, marking another inflation miscalculation that has characterised the Bank’s performance since the arrival of Covid-19.
That higher inflation forecast – now peaking at 7.25 per cent in April according to the Bank’s estimates – combined with a 1.25 percentage point national insurance hike and a 54 per cent uplift to the energy bill cap will deliver the heaviest blow to Brits’ take home since comparable records began in 1990.
“A case can be made for a measured rather than activist approach to policy decisions, with a focus on more persistent developments in the data that have lasting implications for the outlook for price stability,” Pill said.
Last week, Threadneedle Street lifted interest rates at successive meetings for the first time since 2004, sending borrowing costs to 0.5 per cent.
Governor Andrew Bailey sparked fury after the rate decision by pleading with workers to rein in demands for pay rises to help keep a lid on inflation.
Pill sent a strong message to markets that the Bank will act to clamp down on inflation if data reveals it is being driven by factors that could cause it to persist for longer.
“Were we to see evidence of second round effects in wage and cost developments, a tighter policy than otherwise might be required,” he said.