Bank Of England's Chief Economist Urges 'Conservative' Approach to Setting Rates

• Bank of England Chief Economist Huw Pill highlighted that central bankers should adopt what he described as a "conservative" approach to setting interest rates, including responding firmly if price growth gets out of hand.
• Pill, who voted against the BoE's most recent rate cut to 4% in August, said his speech at the University of Birmingham was not intended to be a comment on the current stance of monetary policy or the economic outlook. But he said central bankers should make clear their commitment to prioritising price stability above wider goals for growth and employment over which they could not exert much long-term influence.
• "We should be cautious in assigning monetary policy responsibility for real economic outcomes because, over the longer term at least, all monetary policy can do is determine the nominal dynamics of the economy," he noted.
• The BoE estimates that British consumer price inflation reached 4% in September and forecasts that it will not return to its 2% target until mid-2027. Pill also said there was now too much uncertainty in the economy, both from unpredictable geopolitical events and difficulties estimating underlying economic variables, to focus on especially sophisticated approaches to setting rates.
• Pill also noted that noisy, frequently revised official economic data and potential shifts in labour market behaviour since the pandemic made it hard to estimate how much spare capacity there was in the economy. It also made it difficult to estimate the neutral level of unemployment in a timely enough way for policymakers.

(Sources: Reuters)