BoE Pill Warns Inflation Risks May Slow Quarterly Rate Cuts

The Bank of England is signaling a more cautious approach to its interest rate cuts amid persistent inflation pressures and economic uncertainty. Chief Economist Huw Pill and Governor Andrew Bailey emphasized that while inflation is expected to weaken, the risk of longer-lasting inflation due to shifts in price- and wage-setting behavior may slow the pace of quarterly rate reductions. The recent 5-4 Monetary Policy Committee vote to cut rates from 4.25% to 4.0% highlighted a finely balanced decision, reflecting concerns about inflation rising above the 2% target and a slowing economy. Bailey noted that although the path of interest rates remains downward, there is now genuine uncertainty about the timing and scale of future cuts, given the risks of inflation overshooting and growth undershooting forecasts. Both officials cautioned against cutting rates too quickly or by too much, with inflation in June rising to 3.6%, partly driven by higher food, clothing, and travel costs. The Bank also expects UK growth to slow sharply, increasing the complexity of their policy decisions going forward.