Bank of England must ‘see through job’ of fighting inflation, top economist says | Interest rates #Bank #England #job #fighting #inflation #top #economist #Interest #rates

The Bank of England must “see the job through” in the battle against inflation despite the risk it could harm the economy by overdoing interest rate increases, Threadneedle Street’s chief economist has said.

Speaking in South Africa, Huw Pill indicated he would be voting for a 15th successive rise in the cost of borrowing, to 5.5%, when the Bank’s nine-strong monetary policy committee meets next month.

But the senior Bank of England official strongly hinted rates may then be left at that level, because of the danger of needlessly damaging growth and jobs.

“The key element is that we on the MPC need to see the job through and ensure a lasting and sustainable return of inflation to the 2% target,” Pill said in a speech at a research conference organised by the South African Reserve Bank.

“At present, the emphasis is still on ensuring that we are – in the words of the MPC’s last statement – sufficiently restrictive for sufficiently long to ensure that we have that lasting return to target.”

Since December 2021, the MPC has raised rates at every meeting, bringing them from a record low of 0.1% to 5.25%. With UK inflation still running at 6.8%, more than three times the government’s 2% target, the Bank has predicted that rates are likely to remain high for some time.

Pill’s comments came as the latest data from the eurozone showed inflation was higher than expected in August at 5.3%, unchanged from July. Economists polled by Reuters had expected it to fall to 5.1%.

Pill acknowledged the risk of pushing UK rates too high. “Now that policy is in restrictive territory, there is the possibility of doing too much and inflicting unnecessary damage on employment and growth,” he said.

But he said there was no room for complacency and that some indicators of underlying inflation pressures had developed less benignly recently than the headline rate of inflation, which has fallen from a peak of 11.1% in October 2022 to 6.8% in July.

The key question for policymakers was the extent to which companies and households tried to defend their incomes against increased inflation, Pill said.