Bank of England Chief Economist Huw Pill said structural changes in the UK economy have made inflation more persistent, arguing that policymakers are still assessing how shifts in labor and goods markets have altered the country’s inflation dynamics. His remarks reinforce the view that bringing inflation sustainably back to the Bank’s 2% target may prove more challenging than before.
Speaking at an event in Tashkent, Uzbekistan, Pill said the economy has become “more prone to this sort of self-sustaining momentum in pricing,” adding that structural changes to labor and goods markets have increased inflation persistence. He cited the changes brought about by Brexit as one example, noting that policymakers are “still learning” and “still digesting” their longer-term economic effects.
Pill’s comments highlight a distinction between temporary inflation shocks and the economy’s underlying inflation mechanism. While monetary policy can restrain demand, it has limited ability to address structural supply constraints, including reduced labor mobility and higher trade frictions. If those constraints have become more entrenched, inflation may fade more slowly following future supply shocks.
The remarks reinforce the Bank’s cautious approach to monetary policy. Markets have focused on whether inflation is becoming less responsive to tighter financial conditions, particularly after several years of pandemic disruptions, energy shocks and persistent services inflation. Pill’s assessment suggests structural factors may continue to require a restrictive policy stance even as cyclical inflation pressures gradually ease.
Pill’s comments echo previous observations by Governor Andrew Bailey, who has also acknowledged the economic consequences of Brexit and argued for closer economic ties with the European Union. While estimates of Brexit’s long-term impact vary, the broader message from senior BoE officials is increasingly consistent: structural changes to the UK economy have complicated the task of restoring inflation sustainably to target.
