Interest rates may need to rise this year, says Bank of England chief economist

The Bank of England’s chief economist has warned that interest rates may need to increase this year to keep rising prices under control, as inflation remains stubbornly above target. Speaking on the Walescast podcast, Huw Pill – one of only nine people on the Monetary Policy Committee (MPC) that sets the UK’s interest rate – said the “speed limit at which you can run the economy is a bit lower than it’s been in the past”. Pill, who is from Cardiff and attended Whitchurch High School, was among a minority of MPC members who voted for a rate rise in June. He has been at the Bank for 56 months, during which inflation has been above the 2% target for 53 months; it currently stands at 2.8%. “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. Pill pointed to slowing productivity as a key factor, noting that it measures how efficiently people work and has been a particular problem in Wales, where it is the lowest of the four home nations and around 15% lower than the UK average. Wales also has lower wages and some of the highest rates of welfare claims. Improving the efficiency of the Welsh economy through better infrastructure and a better-educated workforce, he argued, is essential to raising living standards. Any increase in interest rates would affect the cost of mortgages and other borrowing, as well as the returns savers receive. The Bank of England’s inflation target remains 2%, but the current rate of 2.8% suggests that Pill’s call for a rise may gain traction among his MPC colleagues in the coming months.