Bank of England official warns against more rate rises

Top Bank of England official gives clearest signal yet that UK interest rates are at or close to their peak

Signal: The Bank’s chief economist Huw Pill

A top Bank of England official gave the clearest signal yet that UK interest rates are at or close to their peak.

Just a day after rates were raised to a 14-year high of 4 per cent, the Bank’s chief economist Huw Pill warned against doing ‘too much’ in terms of further moves.

The ex-Goldman Sachs economist, who sits on the interest rate-setting monetary policy committee (MPC), said the Bank has already ‘done a lot’ to tame sky-high inflation.

He added that the full effects of the rate hikes – from 0.1 per cent in December 2021 to 4 per cent now – have not yet been fully felt by the economy. ‘Interest rates have risen by almost 400 basis points over little more than a year and given the lags in the transmission of monetary policy, there’s quite a lot of the effects of those raises in interest rates still to come through.

‘It’s important that we guard against the possibility of doing too much,’ he told Times Radio.

Pill said the Bank needed to keep a ‘zen-like’ balance in its objective to bring inflation back to its 2 per cent target. Inflation is now at 10.5 per cent, having peaked above 11 per cent last year.

While the central bank expected inflation to reach its target by the middle of next year, Pill warned that care needed to be taken to ensure companies did not become used to jacking up prices that would risk the issue lasting for longer.

The Bank hiked interest rates for the tenth time in a row by half a percentage point to 4 per cent on Thursday, piling more pressure on mortgage payers and borrowers.

But it was more upbeat on the economic outlook, saying that while Britain was set to enter recession this year, it would be shorter and shallower than previously predicted.

The assessment provided some light relief for UK analysts amid signs that the pain facing Britain’s economy was not yet over.

Services firms suffered their weakest performance in two years last month, data showed, as growth was dented by cutbacks in business and consumer spending. S&P Global said its index of activity in the sector – where 50 is the cut-off between growth and decline – fell from 49.9 in December to 48.7 in January.

That was its lowest level since January 2021, when the country was under a tough Covid lockdown.

Tim Moore, economics director at S&P Global Market Intelligence, said the data showed the economy ‘risks falling into recession’ as it was hit by labour shortages, industrial disputes and higher interest rates.

But there were some positive signs, as the reading was less weak than previous estimates of 48. Business optimism also hit its highest level since April last year as company bosses became more hopeful that the worst was over.

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