LONDON – Bank of England Chief Economist Huw Pill said on Friday it was important not to raise borrowing costs too high, a day after the British central bank signalled it was close to pausing a run of interest rate hikes which began in December 2021.
“We have to recognise that we have done a lot with monetary policy already,” Pill told Times Radio.
On Thursday, the BoE raised interest rates to 4%, their highest since 2008, but it dropped language it previously used about its readiness to act “forcefully” if needed to contain inflation pressures.
Governor Andrew Bailey said inflation, while still above 10%, seemed to have turned a corner after falling for two months.
“Interest rates have risen by almost 400 basis points over … little more than a year and, given the lags in the transmission of monetary policy, there’s quite a lot of the effects of those raises in interest rates still to come through,” Pill said. “There’s a lot of policy in the pipeline.”
He said the full effects of the rate increases had yet to register on the economy.
While the MPC was determined to “see the job through,” Pill also said: “It’s also important that we enguard against the possibility of doing too much.”
Britain’s economy is expected to shrink this year and in 2024, according to the BoE’s latest forecasts.
Pill said it was possible that the economy registers growth in a calendar quarter over the coming year which could change the BoE’s central forecast of a recession that stretches from early 2023 into early 2024.