By William Schomberg
LONDON -The way is clear for the Bank of England to follow through on its plan for a first rise in interest rates since the start of the coronavirus pandemic, the BoE’s new chief economist, Huw Pill, said on Friday.
But Pill avoided sending any signal on the likelihood of the BoE increasing borrowing costs as soon as its December meeting, having shocked investors by keeping policy on hold this month.
“In my view, the ground has now been prepared for policy action,” the former Goldman Sachs economist said in a speech to the Confederation of British Industry on Friday.
Britain’s economic recovery from its pandemic slump was continuing and possibly maturing, supply-chain problems were creating inflation pressure and the labour market was tight, Pill said.
That meant he supported the BoE’s steer earlier this month that rates would have to go up over “coming months.”
“In other words, given where we stand in terms of data and analysis, I view the likely direction of travel for monetary policy from here as pretty clear,” Pill said.
But he said there was still uncertainty about the economy and therefore the BoE could not give precise guarantees.
The BoE sent shock waves through financial markets on Nov. 4 when it kept the Bank Rate at its record low 0.1%. Investors had interpreted comments from Governor Andrew Bailey in late October as signalling that a November rate hike was on the way.
Pill, along with Bailey, was among the seven members of the BoE’s nine-strong Monetary Policy Committee who voted for no change to Bank Rate this month.
Pill used his speech to repeat his concerns about the risks of giving guidance to investors and businesses on the likely direction of interest rates and he said he had felt “a little bit of discomfort” about signing up for the MPC‘s steer in November on the likelihood of higher rates in the coming months.
In an apparent nod to the detection of a coronavirus variant https://www.reuters.com/world/uk/britain-says-new-covid-19-variant-is-most-significant-yet-found-2021-11-26 that might make vaccines less effective, Pill said risks to public health remained.
Looking further ahead, he was clear that the BoE should be cautious about offering guidance on rates.
“Beyond the coming months, the MPC will need to assess the impact of each policy decision it takes on a step-by-step basis, and then evaluate if and when further action is needed,” Pill said.
Governor Bailey on Thursday struck a similar tone, saying central banks took risks when they sought to provide guidance on what is likely to happen with interest rates during times of economic uncertainty, adding to the signs of a new approach by the BoE to communications.