Pace of rate cutting too rapid - BoE's Pill
By Abigail Townsend
Date: Tuesday 20 May 2025
(Sharecast News) - The Bank of England's chief economist argued on Tuesday that the pace of interest rate cuts has been too fast in the face of ongoing wage pressures.
The rate-setting Monetary Policy Committee trimmed the cost of borrowing earlier this month by 25 basis points, the second cut this year and the fourth in the current cutting cycle. The reduction was widely expected but the closeness of the vote surprised many.
Five backed the 25bps cut, but two voted for a bigger 50bps reduction while another two were in favour of leaving rates unchanged.
Chief economist Huw Pill, along with external member Catherine Mann, voted for no change.
Speaking at a briefing at Barclays on Tuesday, Pill told attendees his vote was a "skip" within the continuing withdrawal of monetary policy restriction, rather than a halt.
But he continued: "My dissenting vote stems from a concern that the pace of withdrawal of monetary policy restriction since last summer - quarterly cuts of 25bps - is too rapid, given the balance of risks to price stability we face.
"I remain concerned that structural changes in the price and wage setting behaviour have increased the intrinsic persistence of the UK inflation process.
"That not only makes inflation higher for longer in the aftermath of the pandemic- and invasion-induced inflationary shocks that would have otherwise been the case. It also influences the appropriate Bank Rate response in pursuit of lasting achievement of the inflation target."
The MPC aggressively hiked rates in response to soaring inflation, which peaked at just over 11% in October 2022.
Since then, inflation has eased significantly and central banks around the world have starting paring back the cost of borrowing.
In the UK, the consumer price index now stands at 2.6%, close to the BoE's long-term 2% target.
But wage inflation remains sticky, with average growth at 5.6%, or 5.9% once bonuses are stripped out. The latest figures also do not include changes to the national minimum wage, which came into effect in April.
The latest inflation data, meanwhile, due out on Wednesday, is expected to show a spike in prices, primarily due to higher energy bills.
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