The Bank of England’s top two policy makers signaled that the most aggressive tightening cycle in three decades may be nearing an end.
(Bloomberg) — The Bank of England’s top two policy makers signaled that the most aggressive tightening cycle in three decades may be nearing an end.
Chief Economist Huw Pill said Friday that policy makers must avoid going too far on lifting borrowing costs. Governor Andrew Bailey didn’t rule out another rate rise but dropped previous language that further increases are very likely.
The remarks follow the UK central bank’s decision on Thursday to raise the key rate a half point to 4%, the highest since 2008. Officials dropped guidance that they’re prepared to act “forcefully” to contain inflation and now say they’ll decide based on developments in the economy and on inflation.
“It’s important that as I’ve said we do enough to attain our objective — return inflation to within target — but of course it’s also important that we enguard against the possibility of doing too much,” Pill said in an interview on Times Radio. He said the policy makers need to keep a “zen-like balance” on interest rates and that the full impact of previous hikes is “still to come through”.
In a Q&A with The Sun newspaper, Bailey said it is “too soon to say” if rates will rise further.
“It’s our job to get inflation back down to the 2% target and for it to stay there,” Bailey said. “We’ll make whatever decisions are needed to ensure that happens.”
The remarks were more equivocal and balanced than either of the two had been making before the latest decision. In previous months, Bailey and Pill both said they thought rate rises had further to run.
The central bank aims to restrain inflation, which leaped to a 41-year high of 11.1% late last year. While prices have eased in the most recent two months, reaching 10.5% in December, they remain five times higher than the 2% target.
Pill said the BOE expects inflation to fall sharply this year and that policy makers want to see it holding below inflation “sustainably.”
–With assistance from Andrew Atkinson and Philip Aldrick.
(Updates with Pill comments in four final paragraphs.)
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