Pill: Bank of England Must Put Inflation Control First
- Written by: Gary Howes
Above: File image of Huw Pill. Image © Global Utmaning, Lasse Skog. Modified from original, reproduced under CC licensing, non-commercial.
The Bank of England's Chief Economist has signalled why he might be voting against an interest rate cut in November.
Huw Pill said in a speech given Wednesday that "monetary policy should be resolutely focused on price stability."
Put differently, it's the central bank's job to control inflation above all else.
Our interpretation is that he is suggesting the Bank of England should focus primarily on its core mandate of bringing inflation down and not on other variables such as economic output and employment, where recent developments would advocate for the lowering of interest rates.
Image courtesy of Julian Jessop, showing the UK's unique inflation problem.
The message comes ahead of the Bank of England's November interest rate decision, which is still up in the air: market participants see limited prospects for a cut, but numerous economists think it will still happen.
Those members of the Bank's Monetary Policy Committee in favour of rate cuts, such as Swati Dhingra, the arch-dove, would argue lower rates are needed to prevent increases in the unemployment rate.
Their hand will be strengthened by a steady run of PAYE data showing a multi-month run of job losses, while surveys suggest the economy has lost speed in the third quarter.
But Pill, who is arguably more influential owing to his status as Chief Economist, says in his speech that the Bank's mandate is clear: it must achieve price stability consistent with 2.0% inflation.
With UK inflation potentially hitting 4.0% y/y in September, Huw argues "that monetary policymakers should make a clear and credible commitment to achieve their price stability objective."
He warns the Bank must pursue a "credible commitment to an aggressive monetary policy response should inflation get out of hand" as this "induces behaviour that makes it much less likely that inflation will get out of hand. A virtuous, self-reinforcing cycle of stability is created."
