BoE’s Pill: Favors a more cautious monetary easing approach
Bank of England (BoE) Chief Economist Huw Pill said in a speech at the Institute of Chartered Accountants in England and Wales Annual Conference 2025 in London on Friday that the United Kingdom (UK) central bank must avoid cutting interest rates “too far and too fast” as inflationary pressures continue to remain stubborn.
Additional Comments
A more cautious pace of withdrawing monetary policy restrictions than seen over the past year may be appropriate.
Must guard against cutting too far or too fast.
MPC should adopt a more cautious pace of easing.
There is a risk that self-sustaining inflationary dynamics embed in expectations.
Need to recognise CPI stubbornness as more pressing.
Rate cuts would be appropriate if the economy evolves as forecast.
Vote to maintain rates is a skip rather than a halt.
Shocks could prompt policy changes either way.
Market Reaction
The GBP/USD pair has not been impacted by BoE Pill’s cautious comments on further monetary policy easing. The Cable remains flat around 1.3435 at the time of writing.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
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