Bank of England Chief Economist Huw Pill expressed skepticism over market expectations for four interest-rate hikes over the coming year, while maintaining that further monetary tightening was necessary to contain inflation. Speaking at a Citi event on the sidelines of the IMF meetings in Bangkok on Wednesday, Pill acknowledged that the BoE still had “some work to do” in bringing policy to an appropriately restrictive level. However, he questioned whether markets were right to anticipate four quarter-point increases. “Is it obvious that we will need to move, follow market pricing to four 25 basis-point hikes and so forth? So there, I would be a little bit more sceptical,” he said. Investors currently price a November increase as nearly certain, followed by three additional hikes by September 2027.
Pill also suggested that differences within the Monetary Policy Committee were narrowing as the prolonged Iran conflict increased concerns about persistent inflation. He voted for a quarter-point hike in September alongside two other members, while the majority preferred to wait for clearer evidence of the conflict’s inflationary consequences. However, Pill said “it’s clearer that the implications of that are inflationary for the UK in a more persistent way,” warning of “a risk of some self-sustaining momentum taking hold.” His remarks suggest growing recognition of the need for monetary restraint, although they do not establish that the MPC majority is ready to support an immediate increase.
On domestic inflation, Pill welcomed the slowdown in wage growth but cautioned that pay increases remained “at best” at the upper end of the pace consistent with the BoE’s 2% inflation target. The moderation offers some reassurance that underlying pressures are easing, but not enough to eliminate the case for further tightening. His assessment therefore draws an important distinction between the direction and magnitude of future policy adjustments. Persistent energy-related inflation risks strengthen the argument for higher rates, but improving wage dynamics leave Pill unconvinced that the full four increases currently priced by markets will ultimately be necessary.
Key Takeaways
- Pill questions market expectations for four rate hikes: Bank of England Chief Economist Huw Pill expressed skepticism over four 25-basis-point increases by September 2027, despite acknowledging that monetary policy still has “some work to do.”
- Further tightening remains on the table: Pill’s comments challenge the scale of expected rate increases rather than the need for additional monetary restraint. Markets currently price a November hike as nearly certain.
- Iran conflict narrows MPC differences: Pill said the prolonged conflict has made persistent UK inflation risks clearer, bringing policymakers closer together after September’s divided rate decision.
- Second-round inflation risks remain a concern: Pill warned of “a risk of some self-sustaining momentum taking hold”, suggesting that prolonged energy pressures could spread into broader inflation.
- Wage moderation offers some reassurance: Slowing pay growth is encouraging, but Pill said it remains near the upper end of the pace consistent with the BoE’s 2% inflation target. This leaves uncertainty over how much additional tightening is needed.
