The Bank of England’s Chief Economist is pushing for the base rate of interest to be hiked up now in a bid to dodge more aggressive action in the future.
Huw Pill said it would be prudent for the UK central bank to take action sooner rather than later while speaking to the Edinburgh Chamber of Commerce on Thursday.
There are fears the continuing impact of the Iran war on the global economy could lead to a surge in inflation in Britain.
The bigger the inflationary increase in prices depends on how likely a protracted interest rate rise is.
Pill said raising the base rate “need not be the start of a prolonged and aggressive series of increases” if action is taken now.
“Implemented and communicated effectively, a prompt increase in Bank Rate may serve to head-off some of the potential insidious ‘catch up’ nominal dynamics that threaten to make temporary departures of inflation from target more persistent,” he added.
The Bank of England interest rate is determined by the Monetary Policy Committee (MPC), chaired by the bank’s Governor, Andrew Bailey.
The MPC meets roughly once every six weeks to determine whether to increase or decrease the base rate of interest, or whether to keep it the same.
When the group last met in July, Pill and two other Monetary Policy Committee members voted in favour of a raise.
They were outvoted by the other six people who sit on the committee, with the interest rate remaining at 3.75 per cent.
However, the Bank of England Governor hinted at the time that a rate rise was on the cards for later in the year.
Bailey explained at the time: “If we get a continuation of this conflict going on and oil prices stay above $100 a barrel, the odds are that interest rates will have to go up higher.”
The MPC is next due to meet to determine whether to change the interest rate on Thursday September 17.
Investors appear unconvinced a rates hike will happen when the body gathers to make its decision later this month, but are more certain of a change by the end of 2026.
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