MNI BRIEF: BOE Pill Cautious On Policy, Rate Cuts Uncertain

MNI (LONDON) - Bank of England Chief Economist Huw Pill said he had voted in the minority for unchanged policy in August as he placed more weight on a less benign inflation scenario, one which envisages ongoing second round effects on costs, wages and pricing behaviour from the recent price shocks.

Pill said that while the Bank's baseline scenario in August was that there was a "virtuous circle" whereby the fall back in energy and food prices feeds through to reduced wage and price pressures, all members of the Monetary Policy Committee "at least entertain the possibility that there's a less benign dynamic in the economy right now."

Speaking at a BOE agents event, Pill said that while the direction of travel was for Bank Rate to fall no-one should be assuming that rates were going to move down further in the very short-term. He noted that there was still a relatively tight labor market and said that this is probably still generating upward pressure on wages.

The MPC on Thursday voted 5-4 for a 25 basis point rate cut taking the policy rate down to 5.0%.