Interest rates may need to increase this year to keep rising prices under control, the Bank of England’s chief economist has warned.
Huw Pill, who went to Whitchurch High School in Cardiff and has seen the 400,000 bars of gold bullion stored at the Bank – describing them as “amazingly shiny” – 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”.
“Bank of England chief economist Huw Pill says interest rates may need to rise this year to control inflation.”
Pill is one of only nine people on the Monetary Policy Committee (MPC) who decide the Bank’s interest rate, which affects the cost of mortgages, other borrowing and the return savers get. The rate also controls inflation – currently running at 2.8%, above the Bank’s 2% target.
In June he was in a minority of MPC members who voted for an increase. “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,” he said. “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 – how efficiently people work – has slowed across the UK, but in Wales 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.
Pill said improving the efficiency of the Welsh economy is the key to raising living standards, through things like better infrastructure “to link places together” and creating “a better educated workforce”.
The prospect of a rate rise this year would mean higher borrowing costs for households and businesses, even as the economy struggles with slow growth.