(Bloomberg) -- Bank of England Chief Economist Huw Pill said that the timing of an interest rate cut is still an “open question,” prompting traders to push back bets on a reduction next month.
Pill said on Wednesday that easing monetary policy is a matter of “when rather than if,” but he also continued to air his worries about the persistence of inflation even as other policy makers have signaled they’re ready to cut.
He said the central bank’s policy makers “still have some work to do” to squeeze domestic price and wage pressures out of the pipeline, and he played down the importance of upcoming data before the next decision on Aug. 1.
“It’s still an open question of whether the time for that cut is now or not,” Pill said in a Q&A following a speech on Wednesday. “As long as that process of underlying persistent inflation is contained and being steered back towards target then ultimately, there will be scope to normalize monetary policy. I think we’re in a world of when rather than if.”
The comments suggest that Pill may still be unconvinced by the case to cut interest rates next month despite a drop in the headline inflation figure to the 2% target. The BOE last month left the impression that more people on the nine-member Monetary Policy Committee were ready to ease borrowing costs, saying the decision to leave the key rate at a 16-year high was “finely balanced” for some.
Investors interpreted Pill’s remarks as indicating a reluctance to move just yet. Traders trimmed bets on a quarter-point rate cut at the BOE’s August decision, seeing less than a 50% chance of such a move for the first time since the BOE’s last announcement in June. The pound extended gains, rising 0.4% to $1.2835.
Two of the BOE’s rate-setters are already voting for cuts — Swati Dhingra and Deputy Governor Dave Ramsden. Economists believe that the three hawkish external rate-setters are unlikely to back an August cut. It leaves the decision hinging on four remaining internal rate-setters, including Governor Andrew Bailey and Pill.
However, Pill signaled in his speech on Wednesday that he has lingering concerns over stubborn price and wage pressures.
“It is hard to dispute the case that inflation persistence in the UK continues to prove – well – persistent,” Pill said in the text of a speech released Wednesday. “More data will come before we take our next policy decision at the MPC meeting on 1 August. But we have to be realistic about how much any one or two releases can add to our assessment.”
He said that services inflation and wage growth still “point to an uncomfortable strength in those underlying inflation dynamics.”
“In the absence of any big new shocks, the “when-rather-than-if” characterization of prospective Bank Rate cuts still seems appropriate,” he said.
“But the latest data also remains consistent with the view that these inflationary pressures have now been contained, and may be starting to revert towards levels that are more consistent with the achievement of the inflation target.”
--With assistance from Greg Ritchie.
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