"I worry that taking unusually large policy steps may validate a market narrative that Bank policy is either foot-to-the-floor on the accelerator or foot-to-the-floor with the brake."
During a speech given at the Society of Professional Economists online conference, Huw Pill said that "more is to come in the coming months if the path sketched out in our February forecast plays out".
However Huw, a member of the Bank's Monetary Policy Committee, revealed that he "voted with the majority" for a 0.25% rate rise at the Committee's last meeting, rather than a larger 0.50% increase backed by four of the nine members.
Explaining his decision, Huw said he is "sceptical of efforts to return Bank Rate quickly to some pre-defined neutral level or terminal rate", warning that "such an approach risks increasing inflation and output volatility".
Instead, he believves it is "better to adopt a more measured and data-dependent approach, which learns from how the economy responds to each step taken rather than pre-commits to a concept surrounded by uncertainty". This, he said, is likely to produce a "steadier, more persistent and more purposeful path for policy rates".
Huw added: "I worry that taking unusually large policy steps may validate a market narrative that Bank policy is either foot-to-the-floor on the accelerator or foot-to-the-floor with the brake. This narrative was fuelled by the (perhaps necessarily) activist responses to the onset of global financial crisis and pandemic."
However, he noted that "given the inflationary pressures we currently face, I can certainly understand why colleagues on the MPC voted for a 50bp hike last week".
He concluded: "If – as I expect is a risk – we are set to need more nuanced monetary policy actions in the future as the macroeconomic situation normalises and decisions become more finally balanced, then re-establishing a reputation for measured and purposeful steps in policy is valuable. Restricting ourselves to a 25bp now – albeit with the prospect of more to come in the coming months – is an investment in containing market expectations of aggressive ‘activism’ that I saw as worth making."
