The UK is heading into recession and further interest rate rises are on the way according to the Bank of England’s chief economist.
Huw Pill told a conference organised by Swiss bank UBS this morning that the Bank can’t claim victory in its attempt to stop inflation becoming embedded in the economy.
Pill explained that interest rates are likely to rise further, in an attempt to prevent inflation leading to a spiral of higher wages and prices.
“I think we cannot declare victory against second-round effects, but we are entering a recession." he said.
That’s a difficult trade-off environment for monetary policy.”
That trade-off saw the Bank make its biggest interest rate rise in 30 years last week, while also guiding the markets that borrowing costs wouldn’t increase as much as had been expected.
Pill said the Bank would need to think about the broader economic outlook at some point, but shouldn’t put the housing market ‘on a pedestal.’
And he insisted that the Monetary Policy Committee are not “inflation nutters” but needed to control the surge in prices to stop inflation spreading.
Pill said: “We’re not meant to be inflation nutters."
“We are meant to sort of manage this trade-off in a way that avoids unnecessary, counterproductive maybe, disruptions to the real economy.”
“What we’re most concerned about is whether this self-sustaining inflation will persist.”