The Bank of England’s chief economist has signalled that policymakers should not cut interest rates too fast at future meetings, after the Bank’s first cut in four years on Thursday.
Huw Pill said: “There may be a tendency to think inflation is back at target, so interest rates can go back to where they were. I think that’s a little bit quick.”
He was speaking at a briefing on Friday, after the Bank voted to cut rates to 5%, down from a 16-year high of 5.25%.
Mr Pill admitted that the Bank has gone from “a when-rather-than-if debate” on rate cuts, but reiterated governor Andrew Bailey’s message from Thursday that policymakers “don’t want to go too far or too quickly” on further reductions.
He pointed to factors such as persistent high inflation in the services sector as evidence that underlying inflation could yet return.
Mr Pill said: “We can’t be complacent, we can’t declare job done, because there are dynamics in the UK economy, the more persistent component, that we need to be cautious about.
“We have to return inflation to the 2% target on a lasting and sustainable basis and I think there’s still a little bit of way to go with that.”
He added: “We are not out of the woods but we do think we are making progress.”
Mr Pill was one of the four policymakers who voted against Thursday’s rate cut, and admitted that he was “erring on the side of caution” in his decision.
It was a split vote on Thursday, with five Monetary Policy Committee members voting for the reduction versus four preferring to keep the level at 5.25% for longer.
Those policymakers, who also included Megan Greene, Jonathan Haskel and Catherine Mann, felt they needed to wait for “stronger evidence” that risks to inflation persistence are not going to worsen.
Mr Pill’s statement will reinforce the views of many economists who believe rates will be kept unchanged when the committee next meets in September, but that another cut could come in November.
Nonetheless, the vote from policymakers means pressure will be eased for some homeowners who will see their mortgage costs come down, but it could prompt banks to start reducing savings rates.
It comes after the level of Consumer Prices Index inflation hit the Bank’s 2% target level in May and June, indicating overall price rises had been brought under control.