Top Bank of England economist dents hopes of interest rate cuts due to ‘stubborn’ inflation

A top Bank of England official has played down hopes of an interest rate cut before Christmas as stubbornly high inflation becomes a ‘more pressing’ issue.

In a speech that will disappoint millions of borrowers desperate for cheaper mortgages, the central bank’s chief economist Huw Pill said rates will probably need to be cut more slowly.

The warning came with inflation in the UK the highest among the Group of Seven major developed nations at 3.8 per cent.

That is almost double the 2 per cent target and up from 1.7 per cent in September last year ahead of Rachel Reeves’ first tax-raising Budget.

Huw Pill says stubbornly high inflation is becoming a ‘more pressing’ issue

And official figures next week could show inflation rose to 4 per cent last month – all-but dashing hopes of another rate cut this year.

Mr Pill, who sits on the Bank’s Monetary Policy Committee that sets interest rates, said concerns about inflation merit ‘a more cautious pace’ in cutting rates.

‘The need to recognise the stubbornness of inflationary pressures is becoming more pressing,’ he said in a speech to the Institute of Chartered Accountants in England and Wales in London.

‘And the MPC will need to remain alert to possible new shocks that imply a change in stance.

‘All in all, while I would expect further cuts in Bank Rate over the coming year should the economic and inflation outlook evolve broadly as the MPC expects, it will continue to be important to guard against the risk of cutting rates either too far or too fast.’

The Bank has cut rates four times since August last year, from 5.25 per cent to 4 per cent, but persistent concerns about inflation mean progress has been slow.

Central banks typically raise interest rates to bring inflation down and cut them when it is back under control.

The Bank of England has cut rates four times since August last year to 4 per cent

Mr Pill voted against the most recent rate cut to 4 per cent in August this year and another rise in inflation when figures are published next week will likely give further pause for thought.

Oxford Economics estimates the report will show that inflation rose to 4 per cent in September from 3.8 per cent in August.

The Chancellor has been blamed for fuelling inflation in last year’s Budget by hitting business with an array of extra costs including the £25billion national insurance tax raid and a sharp rise in the minimum wage.

According to bets on financial markets, there is just a 15 per cent chance of a rate cut at the MPC’s next meeting in November. The chances of a December cut a week before Christmas are a little under 50-50.

Instead, investors believe the next rate cut will most likely come in February or March.