The Bank of England held rates this week, but its chief economist did not go quietly. Huw Pill cast the only vote to raise the bank rate at Wednesday's meeting and laid out his case Friday morning.
His message: holding is not safe, and the BoE is falling behind on inflation.
The Monetary Policy Committee voted 8-1 to keep the bank rate at 3.75% on April 30. Pill wanted to lift it by 25 basis points to 4.00%.
He told reporters that holding rates is "not a passive choice." It is a deliberate decision to keep policy where it is, and the BoE has to be ready to move if the data shifts.
He said the committee has varied opinions on second-round effects from energy prices.
Pill explained his vote in a written statement that has since been picked up by markets. The line traders zeroed in on: a "prompt but modest" hike in the bank rate would help mitigate upside risks to price stability from a "re-emergence of intrinsic inflation persistence."
In English: Pill is saying inflation could get sticky again, so he thinks the Bank should act before it does, not after.
He pointed to events in the Gulf as a fresh shock that has pushed energy prices up and made the outlook more uncertain. Second-round effects through pay and price-setting could push UK inflation higher in a lasting way.
UK inflation hit 3.3% in March, well above the BoE's 2% target, with petrol prices the main driver. Petrol rose to an average of 140.2 pence per litre in March, the highest since August 2024. The BoE's own forecasts say inflation is likely to climb further later this year as energy prices feed through.
Pill is not the only MPC member open to a hike. External member Megan Greene has said an increase "may be necessary" at upcoming meetings.
The pound traded modestly lower after the BoE's hold decision Thursday, with traders reading the 8-1 split as more dovish than expected.
A BoE hike would strengthen the pound and lift UK gilt yields, which would pressure UK-listed banks like Barclays (BCS) and Lloyds, while pushing up borrowing costs for British homeowners. UK consumer-facing names like Tesco and Marks & Spencer would feel it on the spending side.
For U.S. investors holding ADRs of UK companies, a stronger pound is a tailwind for earnings reported in dollars.
The next BoE meeting is in June. If UK inflation prints above the central bank's path before then, Pill's case for a prompt hike gets harder to ignore.
Markets are pricing in roughly even odds of one more hike before year-end.
