Speaking at a press conference today, BoE Chief Economist Huw Pill warned that returning inflation to the 2% target may prove more difficult than anticipated. Hence, Pill said the central bank may need to respond in a “somewhat more aggressive or more persistent” way to ensure inflation is brought under control within a reasonable time frame.

He raised concerns that recent shifts in wage and price-setting behavior might reflect a more “structural change”, drawing parallels with inflation dynamics of the 1970s and 1980s.

Pill emphasized that investors should not interpret BoE’s latest forecast, showing inflation returning to target by early 2027 based on market-implied rates, as a clear endorsement of future rate cuts.

Instead, he pointed to the Bank’s more inflationary risk scenario, which assumed persistently weak productivity and stronger wage pressures. These conditions, he said, echo past inflation crises, where elevated price levels triggered repeated and entrenched pay demands.

Last week, Pill voted against the BoE’s quarter-point rate cut, aligning with fellow hawk Catherine Mann in preferring to keep rates unchanged.

BoE MPC member Alan Taylor explained his decision to vote for a 50bps rate cut last week, warning that both global and domestic conditions have deteriorated significantly.

He pointed to a “quite perilous” international trade environment, driven in large part by broader-than-expected US tariffs. Also, “the erosion of confidence that we saw has continued”, he added, with low readings in business surveys like the PMI and REC, along with signs of increased precautionary saving and delayed investment.

Taylor also called the recent UK-US trade deal “quite slender,” noting that most British exports will still face a 10% tariff, offering little near-term relief for exporters.

Taylor warned that waiting for complete confirmation that all inflation pressures had eased before easing policy further could leave BoE behind the curve.

BoE MPC member Megan Greene said during a panel discussion today that while wages and inflation are moving in the right direction, they remain uncomfortably high. and more concerningly, “medium-term inflation expectations have also started picking up.”

Greene, who voted with the majority last week in favor of a 25bps rate cut, the fourth since last August, revealed that she was initially undecided going into the meeting.

She noted being “torn” between holding rates steady and cutting, but ultimately decided to support easing. A key factor in her decision was the rise in global trade tensions, driven by US President Donald Trump’s sharp tariff hikes.

Despite the subsequent temporary trade truce between the US and China announced today, Greene said it would not have changed her vote.

She also flagged continued uncertainty over US-EU trade relations as a key downside risk for the UK economy, noting that any escalation could further dampen external demand.

BoE Deputy Governor Clare Lombardelli reinforced the case for a “gradual and careful” approach to policy easing in a speech today. She noted underlying inflation “have continued to fall” despite noises. Monetary policy is still restrictive and will continue to balance the need to lower inflation with the risk of undermining already soft demand.

Lombardelli highlighted wage growth as a central focus in the disinflation process, particularly given its outsized influence on domestic services pricing. She noted that private sector regular average weekly earnings rose 5.9% in February, still well above levels consistent with BoE’s inflation target. Services inflation, a key proxy for persistent price pressure, remains elevated at 4.7% as of March. Both indicators suggest that while progress has been made, inflationary momentum in wage-sensitive sectors continues to pose a challenge.

She also addressed the global backdrop, warning that higher US tariffs and increasingly uncertain American trade policy could lower growth and inflation in the short term by dampening global demand and trade volumes. However, over the longer term, if trade fragmentation continues, it could “reduce output and productivity and would raise inflationary pressures.”

Full speech of BoE’s Lombardelli here

In a speech following BoE’s Monetary Policy Report released yesterday, Governor Andrew Bailey elaborated on the two alternative scenarios laid out alongside the baseline forecast.

The first scenario envisions that heightened global and domestic uncertainty could suppress UK demand more than currently expected, “easing inflationary pressures”.

In contrast, the second scenario assumes that recent energy price increases could trigger renewed second-round effects in domestic prices, with tighter supply conditions “increasing inflationary pressures”.

Bailey emphasized that these scenarios are not simply stylized upside or downside risks to inflation but are meant to illustrate the underlying mechanisms that could shift the inflation path.

He stressed, “it matters whether inflation differs from the baseline because of demand or supply”. And, the size of the required monetary policy response might be different.

From a monetary policy standpoint, Bailey explained that a demand-driven downside scenario would likely warrant a stronger policy response than a supply-driven upside shock. That’s “simply because there is more of a trade-off to balance when inflation and activity move in different directions,” he added.

Full speech of BoE’s Bailey here.