Bank of England chief economist Huw Pill said that the weight of evidence was shifting towards a rise in interest rates next month. But he had not made a decision. Markets would do better to focus on the longer term. At an economics conference in Bristol, Pill also cautioned against the widespread assumption that the BoE’s first policy move would be to raise interest rates by 15 basis points to 0.25%.
This month, the BoE wrong-footed many investors. This is when it did not lift interest rates from their record low 0.1%. This is after the comments from Governor Andrew Bailey in late October. This has been interpreted as a signal by the market. Inflation has risen to a 10-year high of 4.2% after that. The jobless data has not pointed towards higher unemployment. This is after the end of the furlough scheme. Which is a key concern in this month, that stayed the BoE’s hand. Further unemployment data will come before the BoE’s next meeting on Dec. 16.
He stated that the burden of proof is perhaps a little bit in the other direction. And so, now he is looking perhaps for reasons not to hike rates. Two of the BoE’s policymakers voted to raise rates to 0.25%. Asked if it was safe to assume, this would be the BoE’s first tightening step, said Pill. Also, he added that he could not confirm it and that reflects a genuine uncertainty at a personal level. He also said that the rates could go up by another amount. While it would be convenient to raise interest rates to a multiple of 0.25%, there was no urgency to do so if a different scale of tightening proved appropriate.
Pill told the conference hosted by the Economics Observatory, a body to communicate economics research, and the Festival of Economics that there is no quick fix, and that lack of a quick fix means some patience will be required. Pill said that the policy communication was getting more complicated due to two-sided risks to growth and inflation. The BoE wanted to train markets to focus more on the medium-term outlook. Some volatility was unavoidable given uncertainty about the precise timing of rate rises. Pill said that if they can generate the genuine understanding, they can take out unnecessary volatility. Also, it is important that they don’t try to suppress artificially volatility which reflects the true uncertainties in the economy.
