Huw Pill, member of the Bank of England's Monetary Policy, has maintained his support for raising Bank Rate to 4%, arguing that "clear, prompt and decisive policy action" would help steer markets, reduce uncertainty and support monetary policy transmission, thereby avoiding 'embedded and persistent' inflationary pressures.
Since March, the MPC has decided to keep Bank Rate unchanged at 3.75%.
However, Pill, chief economist and executive director of monetary analysis at the Bank, has voted to raise interest rates in recent MPC meetings and in a new speech this week said the UK is facing "a more profound form of uncertainty" which is "hard to see... disappearing in the foreseeable future".
Discussing uncertainty surrounding the conflict in West Asia, he explained: "It is not just the amplitude of the risk at any point that is uncertain, but also the duration of this uncertainty through time. Even if a new ceasefire were announced tomorrow, experience suggests we would be hard-pressed to assess its effectiveness, how long it might last and what would follow its expiry. Likewise for any re-escalation of the conflict."
Pill noted that in the face of such substantial and complex uncertainty, "it might seem natural to adopt a ‘wait-and-see’ approach to setting Bank Rate", but reiterated comments he made in March that "if you follow a ‘wait-and-see’ approach and then do not ‘see’, all you have done is waited. And in that case, you may have waited too long."
"There is ample reason to doubt that we will we see a definitive resolution of the multiple and profound uncertainties we currently face any time soon", he added.
Pill concluded: "As reflected in my vote in recent policy rounds, I see benefit in acting clearly, promptly and decisively with Bank Rate. This would cut through the noise inherent in the current uncertain environment in a way that bolsters the clarity and effectiveness of our policy choices.
"Raising Bank Rate on this basis need not be the start of a prolonged and aggressive series of increases. Indeed, implemented and communicated effectively, a prompt increase in Bank Rate may serve to head-off some of the potential insidious ‘catch up’ nominal dynamics that threaten to make temporary departures of inflation from target more persistent."
