BoE's Pill Says Rate Cut Still Some Way Off, Despite Recent Progress

• Bank of England Chief Economist Huw Pill said on Tuesday that interest rate cuts remained some way off, even if the passage of time and an absence of bad news on inflation had brought them closer.
• Pill said there were greater risks from cutting the Bank Rate too quickly, rather than too late - a view that grounded his cautious approach to policy, despite signs of a reduction in inflation pressures. Consequently, investors reduced their bets that the BoE will cut rates in the coming months as Pill spoke, with the central bank's August meeting no longer fully priced in as the starting point.
• "The combination of little news and the passage of time have brought a Bank Rate cut somewhat closer," Pill said in a speech at the London campus of the University of Chicago Booth School of Business. "But the same lack of news gives me no reason to depart from the baseline that I already established," Pill added, saying that he stuck with his view in a March 1 speech that "the time for cutting Bank Rate remained some way off".
• Pill, seen as a centrist on the Monetary Policy Committee, declined to comment on whether markets were right to be focused on an August rate cut, and said it was right to maintain a restrictive stance for interest rates.
• "Economic growth in the UK has resumed, albeit at a modest rate, over the past few months following the technical recession we experienced in the second half of last year. And today's survey data certainly supports that view," Pill said.
• Although inflation looks set to fall below the BoE's 2% target in the coming months, Pill warned against getting "too excited" about this, given it would likely rise again as the year progresses. Markets had previously bet on slightly earlier BoE rate cuts after Deputy Governor Dave Ramsden said last week he thought inflation might hold at 2% rather than rise.
• Finally, Pill said the BoE could move policy independently of the U.S. Federal Reserve and the European Central Bank, the latter of which looks likely to cut interest rates in June. He also welcomed the findings of former Fed chair Ben Bernanke's report into the BoE's forecasting processes. However, he cautioned against expectations that the Bernanke report will lead to a rapid change in how UK monetary policy is presented.

(Source: Reuters)