Rachel Reeves issued economy warning as interest rates falling 'too fast'

The Bank of England’s decision to cut interest rates earlier this month was premature and risked pushing up the cost of living,according to Huw Pill, the UK Central Bank’s chief economist. The BoE slashed interest rates from 4.50% to 4.25% on May 8 in a three-way split vote, with two members of the Monetary Policy Committee (MPC) favouring a bigger cut, and two – including Pill – favouring a hold, Reuters reported.

In a speech at Barclays in London on Tuesday, Mr Pill said he had voted against the drop, citing fears over inflation. While the BoE decision is made independently, any increase in inflation risks Chancellor Rachel Reeves’s commitment to the Bank of England’s 2% target, while UK inflation is currently running at 3.4%.

Mr Pill said: “In my view, that withdrawal of policy restriction has been running a little too fast of late, given the progress achieved thus far with returning inflation to target on a lasting basis.”

Mr Pill said his decision was more of a “skip” than a “halt” in rate cuts. “Crucially, I would characterise my May vote as favouring a ‘skip’ within a continuing withdrawal of monetary policy restriction, rather than a halt to the process of withdrawal.”

Although the cost of living has been falling, there are fears that April’s price hikes and the impact of President Donald Trump‘s aggressive tariff policy may cause inflation to spike over the next few months.

Mr Pill also spoke out against previous rate cuts.

He said: “As reflected in the voting record, my sense is that bank rate plateaued at slightly too low a level in 2023, and the MPC (monetary policy committee) started cutting bank rate slightly too early in 2024.

“To compensate, my starting point is that the pace of bank rate reduction should be ‘cautious’, running slower than the 25bp (basis points) per quarter we have implemented since last August. “That requires a ‘skip’ in that quarterly pattern at some point.

“And I decided that the May meeting was an appropriate moment for that ‘skip’.”

Mr Pill said he remained concerned about “upside risks to the achievement of the inflation target and the quarterly pace of rate cuts since mid-2024 had been “too rapid”.