Interest rates may need to increase this year to keep rising prices under control, according to the Bank of England’s chief economist, Huw Pill. The warning comes as inflation remains above the central bank’s 2% target, standing at 2.8%.
Pill, who is from Cardiff, 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”. He is one of nine members of the Monetary Policy Committee (MPC) that decides the Bank’s interest rate, which affects the cost of mortgages and other borrowing, as well as the return savers get on their money.
“Bank of England chief economist Huw Pill says interest rates may need to rise this year to control inflation.”
He was in a minority of MPC members who voted for an increase in interest rates in June. Reflecting on his time at the Bank, Pill said: “I’ve been at the bank for 56 months, inflation’s been at or below target for three months, it’s been above target for 53 months. 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.”
Productivity, which measures how efficiently people work, has slowed down in the UK, Pill noted. The issue is particularly acute in Wales, where productivity 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.
Pill said improving the efficiency of the Welsh economy is the key to raising living standards, pointing to better infrastructure “to link places together” and creating “a better educated workforce”. His comments suggest that the Bank may be forced to act again this year, potentially pushing mortgage costs higher for borrowers already stretched by the cost of living crisis.