Bank of England chief economist Huw Pill undermines rate cut hopes despite falling inflation

Bank of England chief economist Huw Pill said interest rate cuts were a question of “when, rather than if” but said it remained an “open question” whether it should act now.

Speaking in London yesterday, Pill said underlying signs of inflation pressure were showing “uncomfortable strength” even though inflation fell to her 2 percent target.

And in a separate speech, the Bank of England’s rate-setter, Catherine Mann, also highlighted the strength of price pressures in the economy.

The comments dampened market bets that the bank will cut interest rates at its meeting on August 1.

Traders last night saw a 50/50 chance of such a move occurring, down from 60/40 the day before.

And the pound rose above $1.28 against the US dollar, its highest level in a month.

Falling inflation has fuelled hopes that the Bank will soon cut rates, which are currently at 5.25 percent, the highest level since 2008.

Pill said: “In the absence of any major new shocks, the ‘when, rather than if’ characterisation of potential Bank rate cuts still seems appropriate.”

He noted that, on the one hand, service sector inflation and wage price growth remained high, but added that, on the other hand, there was evidence that inflationary pressures “have now been contained.”

But Pill added: “I think it’s still an open question whether the time for a rate cut is now.”