# BoE’s Pill sees need for further interest rate rises
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-05-20
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: BoE Chief Economist: Interest Rates Must Rise Further to
Meta Description: Bank of England's Huw Pill states inflation at 40-year high of 9.0%, stressing importance of avoiding entrenched high inflation expectations.
URL: https://financedigest.com/boes-pill-sees-need-for-further-interest-rate-riseshtml

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By David Milliken

LONDON (Reuters) – The Bank of England will need to raise interest rates further to combat the risk of self-perpetuating price rises, the central bank’s chief economist, Huw Pill, said on Friday.

Pill said the central bank was battling the biggest inflation challenge since it gained operational independence in 1997, with inflation at a 40-year high of 9.0% and set to hit double digits later this year.

While inflation in the short-term was driven by factors such as geopolitical conflict, surging energy prices and supply-chain bottlenecks which the BoE could not control, he said it [needed to ensure expectations of high inflation](https://www.financedigest.com/bank-of-england-still-needs-to-see-the-job-through-on-inflation-pill.html "Bank of England still needs to ‘see the job through’ on inflation: Pill") did not become entrenched.

[“Avoiding any drift towards the embedding of such ‘inflationary psychology’ into the price-setting process](https://www.financedigest.com/auditors-could-have-unfettered-access-to-internal-business-processes-to-avoid-another-carillion.html "Auditors could have unfettered access to internal business processes to avoid another Carillion") is crucial,” Pill said in a speech to Wales’s Association of Chartered Certified Accountants.

“Tightening still has further to run,” he added.

Earlier this month the BoE said “some degree of further tightening in monetary policy may still be appropriate in the coming [months” – although two members of its Monetary Policy Committee reckoned this guidance](https://www.financedigest.com/italys-leonardo-raises-fy-orders-guidance-after-strong-nine-months.html "Italy’s Leonardo raises FY orders guidance after strong nine months") was too aggressive.

The BoE has raised [interest rates](https://www.financedigest.com/interest-rates-are-cut-to-an-all-time-low-what-will-this-mean-for-small-businesses.html "Interest rates are cut to an all-time low. What will this mean for small businesses?") four times since December – more than any other major central bank – and financial markets expect rates to reach 2% by the end of the year from 1% now.

BoE forecasts earlier this month showed [inflation in three years’ time was on course to significantly undershoot its 2% target](https://www.financedigest.com/the-mouse-that-roared-new-zealand-and-the-worlds-2-inflation-target.html "The mouse that roared: New Zealand and the world’s 2% inflation target"), as the economy slows and energy prices stabilise.

But Pill indicated this should not automatically be read as a signal that the [BoE thought market rate](https://www.financedigest.com/fed-rates-up-boe-up-ecb-up-stocks-up.html "Fed rates up, BoE up, ECB up, stocks up") expectations were excessive.

I want to flag some reasons for caution in how to interpret our published [inflation forecasts as guides to the validity of the interest rate](https://www.financedigest.com/hotel-investors-should-they-be-worried-about-a-potential-economic-pause-delving-into-inflation-interest-rates-recession-etc.html "‘Hotel Investors – should they be worried about a potential economic pause?’ delving into inflation, interest rates, recession etc") profiles on which they are conditioned,” he said.

For example, these forecasts did not capture the [impact of a potential future European embargo on Russian oil](https://www.financedigest.com/oil-falls-as-earthquake-impact-on-crude-eases-rate-hike-fears-rise.html "Oil falls as earthquake impact on crude eases, rate hike fears rise") and gas, he said.

(Reporting by David Milliken and Andy Bruce; editing by William James and Kylie MacLellan)


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