BoE's Pill Says Cutting Bank Rate Remains Some Way Off

(RTTNews) - Bank of England Chief Economist Huw Pill said on Friday that an interest rate cut from the U.K. central bank was not imminent. "...in my baseline scenario the time for cutting Bank Rate remains some way off," Pill said in a speech in Cardiff.

"I need to see more compelling evidence that the underlying persistent component of UK CPI inflation is being squeezed down to rates consistent with a lasting and sustainable achievement of the 2 percent inflation target before voting to lower Bank Rate."

Pill was among the BoE policymakers who voted to leave the key rate unchanged at 5.25 percent.

The present weakness in the U.K. economic activity was largely due to the developments on the supply side, the policymaker said. Headline inflation is likely to fall further in the coming months and near the 2 percent target or go below that, Pill observed, which he said would be mainly due to a combination of base effects and external factors. The rate-setter warned against being lulled into a false sense of security about inflation developments by the mechanical effects of high monthly inflation a year ago dropping out of the calculation of annual rates. Further, the impact of downside surprises in international commodity prices, notably for energy and food, could also distort the inflation picture.

Pill also said that there was some way to go before there is conclusive evidence of a downward shift in the persistence of inflation. "Even if we were to become more confident that the persistent component of inflation is easing, that does not imply the MPC would no longer need to maintain its restrictive stance," the policymaker said.

"On the contrary, the easing in the persistent component of inflation is a result of the policy stance."

"A change in the Bank Rate can still leave the level of Bank Rate in restrictive territory," Pill added.