Huw Pill, member of the Bank of England’s Monetary Policy Committee (MPC), said the central bank acted “too early” when it cut the base rate in August.
The reduction from 5.25% to 5% was the first change to the base rate in a year and the first cut since March 2020. It was voted for by a majority of 5-4 as committee members said there was still a risk of inflation rising by the end of this year.
Speaking at the Institute of Chartered Accountants for England and Wales’ annual conference in London, Pill seemed to contradict the opinion of the central bank’s governor Andrew Bailey, who this week said the committee needed to be “more aggressive” in cutting rates.
He said the central bank produced an economic analysis using the Bayesian Vector Auto-regression (BVAR) model, which predicted that inflation would rise higher than what the MPC forecast.
The model assumed less restrictive monetary policy, and Pill said the forecast “gave me pause for thought about the timing and the magnitude of this removal of restriction”.
He added: “I felt that August was somewhat too early to start cutting bank rate from 5.25%.
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“This thinking influenced my decision to vote to hold rates in August. And the framework it reflects continues to influence my thinking today.”
He said as the MPC’s November meeting drew closer, more data and new forecasts would become available that could impact the committee’s decision.
However, Pill added: “There is ample reason for caution in assessing the dissipation of inflation persistence. While further cuts in bank rate remain in prospect should the economic and inflation outlook evolve broadly as expected, it will be important to guard against the risk of cutting rates either too far or too fast.
“For me, the need for such caution points to a gradual withdrawal of monetary policy restriction.”
