BOE has held at 3.75% since December, diverging from Fed and ECB
Bank of England Chief Economist Huw Pill said Wednesday that it is not clear the central bank will need to raise its key rate by a full percentage point to tame inflation, even as investors currently price in that magnitude of tightening, casting doubt on the trajectory the market expects the BOE to follow.
“Is it obvious that we will need to follow market pricing to four 25 basis point hikes?” Pill said. “There I would be a little more skeptical.”
The BOE has held its benchmark rate at 3.75% since December, a stance that has put it out of step with both the Federal Reserve and the European Central Bank. The Fed and the ECB have lifted borrowing costs in response to the rise in energy prices since the start of the U.S.-Iran war.
Pill himself has been a dissenting voice on the BOE’s rate-setting Monetary Policy Committee. Over recent meetings, he has voted against the majority and in favor of a rate rise, arguing that policymakers could not afford to wait for clarity on the duration and impact of the conflict.
Wednesday’s comments added a nuance to that position. While Pill continues to favor tighter policy, he is now questioning whether the magnitude of response that markets are pricing in is required. The size of the response needed to contain inflation is uncertain, Pill said, but may not be as large as investors currently expect.