The Bank of England's chief economist has warned that interest rates may need to increase this year to keep inflation under control, as he revealed he voted for a rise in June. Huw Pill, one of only nine people on the Monetary Policy Committee, told the Walescast podcast that the "speed limit at which you can run the economy is a bit lower than it's been in the past". His comments come as inflation remains stubbornly above the Bank's 2% target, standing at 2.8%.
Pill, who is from Cardiff and attended Whitchurch High School, has seen inflation above target for 53 of his 56 months at the Bank. "So I think that's a reflection of the fact that, in part, we've had some bad luck, we've been subject to challenges, but perhaps we've been a little bit over optimistic about what the trend growth in the economy is," he said.
“Bank chief economist Huw Pill says interest rates may rise this year as inflation stays above target.”
A key factor behind the sluggish growth is productivity, which measures how efficiently people work. Pill said productivity has slowed across the UK, but is a particular problem in Wales, where it is the lowest of the four home nations and around 15% lower than the UK average. People in Wales also earn lower wages than the UK average and have some of the highest rates of welfare claims.
Improving the efficiency of the Welsh economy is crucial to raising living standards, Pill argued. He pointed to better infrastructure "to link places together" and creating "a better educated workforce" as essential steps.
The chief economist's warning suggests homeowners could face higher mortgage costs in the months ahead, as the MPC weighs whether to raise rates again to tame inflation.