Bank of England's Pill urges caution on rate cuts

Bank of England economist Huw Pill urged caution on interest rate cuts on Friday, in contrast to more dovish comments from governor Andrew Bailey.

In a speech at the Institute of Chartered Accountants of England and Wales’ annual conference, Pill - the BoE’s chief economist - said there was still "ample reason for caution" when assessing inflationary persistence.

He continued: "While further cuts in Bank Rate remain in prospect, should the economic and inflation outlook evolve broadly as expected, it will be important to guard against the risk of cutting rates either too far or too fast.

"For me, the need for such caution points to a gradual withdrawal of monetary policy restriction."

His comments came a day after Bailey told The Guardian that he held out the prospect of the BoE becoming "a bit more aggressive" in cutting rates, provided the news on inflation continued to be good.

Sterling, which fell sharply against the dollar on the back of Bailey’s comments, was trading higher following the publication of Pill’s speech.

The BoE raised the cost of borrowing rapidly to counter surging inflation, which peaked at 11.1% in October 2022. Since then inflation has fallen back and now stands at 2.2%, just ahead of the BoE’s long-term target of 2%.

The Monetary Policy Committee trimmed interest rates for the first time in more than four years in August, by 25 basis points to 5%.

It opted to leave them unchanged in September, but analysts widely expect a further reduction at the next meeting in November.

Joshua Mahony, chief market analyst at Scope Markets, said: "While markets remain optimistic that we will see cuts in both November and December, Pill’s preference to remain restrictive in a bid to drive down underlying inflation does highlight the lack of a central dovish narrative than markets might believe exist."