Bank of England Chief Economist Huw Pill signals rate hike

Bank of England Chief Economist Huw Pill stated that raising interest rates now to control rising inflation due to the Iran war could reduce the likelihood of the central bank taking harsher measures going forward.

Interest rate hike assessment

Bank of England Chief Economist Huw Pill made significant remarks in the prepared text of his speech at the Edinburgh Chamber of Commerce.

Pill noted that raising the bank rate does not have to mark the beginning of a prolonged and aggressive series of hikes.

Inflation and persistence risk

It was stated that a rapid increase in interest rates could prevent the temporary rise in inflation from becoming permanent.

It was conveyed that early moves would help ward off catch-up nominal dynamics that render temporary deviations from the inflation target permanent.

Divergences within the committee

Pill and two other members of the Monetary Policy Committee voted to raise interest rates at the July meeting.

The majority of the committee preferred to see clear signs regarding the long-term inflationary pressures of the Iran war.

Market pricing and expectations

In the interest rate futures market, investors are assigning a low probability to a 25-basis-point rate hike by the Monetary Policy Committee at this month's meeting.

For the November meeting, however, the probability of a 25-basis-point interest rate hike is priced in at over 70 percent in the markets.