Two MPC members vote for rate hike as Pill says 2.8% inflation is 'problematic'

Huw Pill, the Bank of England’s chief economist, said Monday that policymakers must resist complacency in the fight against inflation, warning that price growth at 2.8% — nearly a percentage point above the central bank’s 2% target — should still be treated as a serious concern.

The Consumer Prices Index held at 2.8% in May, above the Bank’s target. Pill told the Press Association that in the past, inflation running around one percentage point above target would have been seen as “problematic.”

“I think it should be seen as problematic, because our mandate is very clear; inflation at 2% at all times,” Pill said. He added that the experience of inflation hitting 11% should not create a looser benchmark: “I do fear a little bit that, because we saw inflation go to 11%, policy discussion becomes, ‘oh inflation at 3% is not so bad’.”

The warning comes after the Monetary Policy Committee split 7-2 at its June meeting to leave borrowing costs on hold. Pill and external MPC member Megan Greene voted for a quarter-point rise, to 4%. The decision kept Bank Rate at 3.75%, where it has been since December 2025 following a series of six cuts beginning in August 2024.

Pill appeared to criticize the pace of those cuts, arguing that on balance monetary policy “hasn’t been restrictive enough over the last few years.”

City economists have recently been trimming their forecasts for further rate increases as tensions in the Middle East have eased and the oil price has fallen. Money markets now fully price in one rate rise by February 2027; earlier this year, markets had priced in as many as three increases by the end of 2026.

MSI previously reported that the MPC had held rates at 3.75% on June 18 as central banks worldwide adopted a cautious posture following signs the Strait of Hormuz may reopen after a US-Iran interim peace deal. Bank of England Leaves Rates Unchanged, Signals Caution on Hormuz Opening

However, Pill pointed to a fresh round of escalating strikes between Iran and the US last weekend as a reminder that the peace deal will not be easy to secure.

“The world is becoming more uncertain and becoming more complex,” Pill said. “What we can guarantee is that monetary policy is not adding to uncertainty, and I think that is where we should keep the focus.”

The latest data on UK mortgage approvals and consumer credit is due for release later Monday. European Central Bank President Christine Lagarde is also scheduled to speak at the ECB Forum on Central Banking later in the day.