BoE Chief Economist Huw Pill said in a speech,the balance of risk around inflation is “tilted towards inflation proving stronger and more persistent than anticipated in that baseline.”. Underlying developments that point in this direction include reduced contestability of UK labour markets by EU immigrants and workers due to Brexit. Broader globalization process looks to have stalled and maybe in retreat. Impact of aging and longer-term health consequences of the pandemic may have led to a decline in UK labour force participation.
Pill added that in this context, “avoiding any drift towards the embedding of such ‘inflationary psychology’ into the price setting process is crucial”. Thus, the time has now come to withdraw monetary policy accommodation.
“It is the need for a continuation of this transition in monetary policy that led me to support the 25bp hike in Bank Rate at the May MPC meeting,” he said. “And, even after this hike, I still view that necessary transition as incomplete. Further work needs to be done.”