Pill has voted against the BoE’s last four interest rate cuts and said interest rates were now “a little bit too low”, although just about high enough to be putting some downward pressure on inflation

International News via Reuters:

Bank of England Chief Economist Huw Pill said underlying inflation in Britain was settling at about 2.5% a year, higher than the BoE’s 2% target, which made it inappropriate to cut interest rates further.

Pill has voted against the BoE’s last four interest rate cuts and said interest rates were now “a little bit too low”, although just about high enough to be putting some downward pressure on inflation.

“I still think we’re sufficiently restrictive – although there’s some ambiguity there – that holding at this level and being cautious will be enough,” he said at an event in London hosted by the bank Santander.

POLICYMAKERS DIVIDED ON FUTURE RATE CUTS

After cutting rates six times since August 2024, the BoE’s Monetary Policy Committee is now divided on how much further, if at all, rates should fall.

The MPC’s last three meetings have resulted in 5-4 splits and financial markets see just one or two more cuts this year – though the narrow majority was in favour of a hold last week, and remarks by Governor Andrew Bailey made some economists think the next cut could come as soon as March.

The BoE forecasts inflation will fall sharply from 3.4% in December to close to its 2% target in April or May, largely due to one-off effects related to regulated prices and measures from finance minister Rachel Reeves’ November budget.

Pill said he worried that the return to target would be temporary.

“I think when we look at where we are now, short of something happening, underlying inflation is going to be two and a half percent, once we take that half-percentage-point impact from the budget out of the forecast we have for April-May,” he said.

In minutes of February’s decision, Pill said interest rates had been cut too fast previously and that inflationary pressures stemming from that “still need to be contained and eliminated”.

PILL SEES ‘SHALLOW SAUCER’ PATH FOR WAGES AND PRICES

In his comments on Friday, Pill likened the outlook for businesses’ wage and price-setting plans to a “shallow saucer” with a small dip followed by a rise at the end and repeated his view that the cooling of inflation pressures was incomplete.

“In order to complete that (disinflation) process, monetary policy has a part to play and that means we do need to retain some restrictiveness in the stance of monetary policy until that process of disinflation is complete,” Pill said.

Four of the MPC’s nine members last week voted for a rate cut due in large part to concerns about a slowdown in the labour market, where the jobless rate has risen to its highest in nearly five years.

But Pill said much of the recent rise in unemployment could be due to structural factors, rather than a cyclical slowdown that could be ameliorated by rate cuts.

“The important thing to say is growth in the UK is positive … we’re not seeing some sort of collapse in activity,” he said.

Reporting by David MillikenEditing by William Schomberg, William Maclean

The blue‑chip FTSE 100 rose 0.4%, hovering below record highs touched on Thursday

International News via Reuters:

Britain’s FTSE 100 locked in a third straight week of gains on Friday, as corporate takeovers and expectations of monetary policy easing helped counter global concerns about AI’s disruptive potential on a swathe of industries.

The blue‑chip FTSE 100 rose 0.4%, hovering below record highs touched on Thursday. The FTSE 250 mid‑cap index gained 0.5%, securing its first weekly rise after two consecutive weeks of losses.

A burst of new AI tool releases since late January has fuelled volatility in global markets, as investors weighed the threat newer models pose to traditional businesses.

INVESTORS CHEER M&A DEALS

London-listed credit analytics firm Experian, exchange operator London Stock Exchange Group, information group RELX, which were among the worst-hit stocks in the global selloff, rebounded on Friday.

Investors have cheered major M&A deals this week, including a U.S. buyout of fund manager Schroders and NatWest Group’s plans to buy wealth manager Evelyn Partners.

The week also saw data that showed Britain’s economy grew just 0.1% in the fourth quarter, matching the previous quarter’s pace and partly reflecting uncertainty in the run-up to finance minister Rachel Reeves’ November budget.

Investors are pricing in a 63.4% chance that the Bank of England will lower borrowing costs by 25 basis points when it meets in March.

BoE Chief Economist Huw Pill, however, warned underlying inflation was still running near 2.5% and said rates must remain restrictive until disinflation is firmly secured.

Among other stock movers, NatWest reported a 24% jump in annual profit, just ahead of forecasts, and set more ambitious performance targets as it steps up investment in Britain’s costly but potentially lucrative wealth management market.

However, the bank’s shares fell 2.5% following a strong run last year.

Defence stocks got a lift, adding 3.1% after a report that Prime Minister Keir Starmer plans to push a multinational defence initiative at the Munich Security Conference this weekend. 

Reporting by Tharuniyaa Lakshmi in Bengaluru; Editing by Shailesh Kuber and Alex Richardson