Inflation in the UK has surged to 3.5%, according to the latest figures from the Office for National Statistics (ONS) — just one day after the Bank of England’s chief economist Huw Pill issued a warning that interest rates may be falling too quickly.
Speaking ahead of the official data release, Pill expressed concerns that the Bank’s efforts to bring inflation under control were beginning to show “signs of stuttering.” He said the risk of persistent inflation led him to vote for a ‘skip’ in rate cuts during the most recent policy meeting earlier this month.
A Surprise Jump in Inflation
The ONS data confirmed Pill’s fears, showing that the Consumer Prices Index (CPI) inflation rose to 3.5% in April — higher than many economists and the Bank itself had anticipated.
While a rise had been expected due to widespread bill increases, the scale of the jump took many by surprise. It marks the highest inflation level in more than a year, reflecting what some analysts have called an “awful April” for households, as the cost of essentials like energy and broadband surged.
A Divided Bank of England
The rate decision itself was split three ways by the Bank of England’s Monetary Policy Committee (MPC):
- Five members voted for a modest rate cut, bringing the base rate down by 0.25% from 4.5% to 4.25%
- Two members, including Pill, voted to keep rates unchanged
- Two other members pushed for a larger 0.5% cut
Despite being in the minority, Pill has stood firm in his view that the pace of cuts has been too fast. He argued that the rate of underlying inflation remains “obstinately robust” and that the Bank has moved too aggressively in trimming rates since last summer.
“My starting point is that the pace of Bank rate reduction should be cautious, running slower than the [quarter percentage point] per quarter we have implemented since last August,” Pill said during a briefing.
He emphasised that he wasn’t advocating for a complete halt to cuts, but rather a more measured approach. In his view, the previous round of rate hikes in 2023 ended prematurely, and the decision to begin cutting in early 2024 was “slightly too early.”
Market Reactions and Borrower Concerns
Pill’s comments have poured cold water on hopes for a swift series of rate reductions. As a result:
- Markets are no longer pricing in a rate cut for June
- For the next MPC meeting in August, the chances of a further cut — from 4.25% to 4% — are now seen as only around 50/50
- By summer 2025, interest rates are only expected to fall marginally to around 3.75%
This will come as disappointing news to millions of borrowers, especially homeowners and businesses, hoping for some relief from high lending costs. It also comes amid fresh insolvency data showing that 2,053 companies went bust last month — the highest monthly figure since July.
Differing Views Among Rate-Setters
Pill’s stance has put him at odds with other members of the MPC, and even some former Bank officials have weighed in.
Andrew Sentance, a former MPC member, said he agrees with Pill’s caution but described it as a “worrying signal” that the Bank’s chief economist is out of step with the broader committee on such a crucial issue.
A key concern for those with a more hawkish view — like Pill — is the pace of wage growth, which remains high. There are fears this could keep upward pressure on inflation if left unchecked.
However, economists at Goldman Sachs have taken a more optimistic view. They believe that pay growth will ease significantly this year, allowing the Bank of England to adopt a “less cautious” stance moving forward.
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