A clear decision was made to cut interest ratesDisinflation is showing ongoing progressAt the margin, there has been an upward shift in inflation risks for 2-3 years timeInflation is being driven by one-off effectsThere is a risk of spillover into more persistent inflationWeaker labor market is acting as an offsetting factorIf price and wage-setting behaviour is changing, we need to question if the recent pace of rate cuts is sustainable MPC overall believes UK monetary policy is still restrictiveWhen inflation is high due to external forces, we need to be aware of the risk that they might affect domestic price-settingScope to lower rates is limited by weak supply growthWe are approaching 2% to 4% neutral rate rangeThere is a little bit further to go on ratesIt is too early to offer precise guidance on neutral rateRate-cutting pace is less clear than over the past year
Pill is clearly worried about inflation here. That’s not surprising given that the UK hasn’t managed to bring inflation down sustainably and still has one of the highest rates among the advanced countries. Wage growth might have been a big factor as the rate has been persistently higher than pre-covid levels.
He’s placing a great focus on wage-setting in his comments and that should put wage data at the top of the economic data to follow in the next months. The UK might have a de-anchoring problem on inflation and if the dreaded wage price spiral happens, a hard landing will be guaranteed.