Brits brace for pain as BoE chief economist urges interest rate hikes now to head off inflation surge from Iran war

Brits are braced for more financial pain after the Bank of England‘s chief economist urged an immediate hike to interest rates.

Huw Pill called for a raising of interest rates to 4 per cent from their current 3.75 per cent as he voiced fears about surging inflation due to the Iran war.

He demanded action as he criticised a ‘wait-and-see’ approach of his fellow members of the Bank’s nine-person Monetary Policy Committee (MPC).

Mr Pill was one of three members of the MPC to vote to raise interest rates in July. 

But they were outvoted by a majority preferring to keep rates at 3.75 per cent, including the Bank’s governor Andrew Bailey.

In a speech at the Edinburgh Chamber of Commerce, Mr Pill reiterated his concerns about the risks of leaving interest rates unchanged while waiting for clearer signs of how the Middle East crisis has affected the UK economy.

‘There is ample reason to doubt that we will see a definitive resolution of the multiple and profound uncertainties we currently face any time soon,’ Mr Pill said.

‘In my view, in this environment we cannot wait for uncertainties to resolve themselves before acting. It is now six months since the onset of conflict in the Middle East.

‘How or when the conflict will be resolved and, more importantly, the magnitude of its implications for UK inflation, remain unclear: essentially as unclear as they were six months ago.

‘Given all this, I am uncomfortable with a ‘wait-and-see’ framing of the MPC’s current decisions over bank rate.’

Mr Pill said he was concerned that keeping interest rates on hold may signal a ‘bias to the status quo’ in terms of decision-making on the MPC which risks letting monetary policy fall behind in addressing emerging inflationary pressures.

He said raising interest rates to 4 per cent would deliver a ‘clear and unambiguous signal of the MPC’s willingness and ability to address upside risks stemming from events in the Middle East’.

‘Raising bank rate on this basis need not be the start of a prolonged and aggressive series of increases,’ he added.

‘Indeed, 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.’