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BOE Chief Economist Says Key Rate Likely to Rise Again in Coming Months

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(Bloomberg) — Bank of England Chief Economist Huw Pill said the benchmark lending rate in the U.K. will probably rise again in the coming months and a squeeze on living standards is probably unavoidable.

Speaking on Bloomberg TV the day after the BOE increased interest rates to 0.5% in its second successive hike, Pill said the bank as working to ensure that the U.K. didn’t suffer so-called second-round effects from high inflation.

“As long as things play out broadly as we expect, we would expect to see a further modest tightening of monetary policy which would embrace a rise in bank rate,” Pill said in an interview Friday with Bloomberg Television. “Given the nature of the shock we’re facing, real incomes in the U.K. will suffer to some extent. That’s unavoidable.”

Some officials pushed for an even bigger move on Thursday, and markets responded by pricing in rises at three of the next four meetings. The degree of tightening priced in by markets, which would be the fastest since the BOE gained independence, comes as the central bank predicts inflation will hit 7.25% in April, and the U.K. faces a cost of living crisis that by one metric will leave incomes squeezed by the most in at least 30 years. 

Still, Pill cautioned that BOE forecasts showed inflation would drop below target in the future, and drew attention to Governor Andrew Bailey’s comments that markets shouldn’t get carried away.

Pill added that monetary policy can’t fix inequalities in society and said that the BOE’s best contribution would be to limit inflation, and also declined to criticize a suggestion from Bailey that workers should show restraint in asking for pay increases.

“Monetary policy can and should focus on ensuring that we don’t see a repeated attempt, which is inflation generating, by different groups, different,workers, firms etc to try and shift the burden of that shock onto others, like pushing up their wages, pushing up their margins,” he said.

BOE Chief Economist Says Key Rate Likely to Rise Again in Coming Months

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