By Paul Hannon
The Bank of England still has some way to go before it can celebrate having tamed inflation, its chief economist said Tuesday.
The central bank lowered its key interest rate for a second time last week, responding to a decline in the rate of inflation over recent months.
But Huw Pill said wages continue to rise rapidly, as do services prices, and at a pace that isn't consistent with meeting the inflation target over coming years.
"There is still some work to be done," he said, adding that further reductions in the key rate would be "gradual."
Figures released earlier Tuesday showed wages excluding bonuses in the three months through September were 4.8% higher than a year earlier, a slowdown from the 4.9% growth recorded in the previous three-month period.
The BOE is signaling that it is likely to move more slowly than some of its European counterparts in lowering borrowing costs, a message Pill said reflected the fact that the U.K "is less along with its adjustment."
In contrast to other European central banks, U.K. policymakers have spoken more frequently about the possibility that the surge in inflation that followed the Covid-19 pandemic and Russia's full-scale invasion of Ukraine has had a lasting impact on the behavior of businesses and households.
"We have seen that the big impact from the pandemic and the invasion, there's an open question as to whether that's had a more lasting impact on pay and inflation," Pill said.
Although policymakers judge it unlikely that rapid rates of wage and price increases have become self-perpetuating, Pill said that should the evidence indicate there has been a lasting transformation, the BOE would have to keep its key rate high.
"If you think there's been a permanent or lasting change, that means rates do need to be higher," he said.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
11-12-24 0707ET
