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Bank of England official warns against more rate rises

Signal: Huw Pill, Chief Economist of the Bank

Senior Bank of England official gives clearest signal yet that UK interest rates are at or near peak

Signal: Huw Pill, Chief Economist of the Bank

Signal: Huw Pill, Chief Economist of the Bank

A senior Bank of England official has given the clearest signal yet that UK interest rates are at or near their peak.

Just a day after rates were raised to 4%, their highest level in 14 years, the Bank’s chief economist, Huw Pill, warned against doing ‘too much’ in terms of new measures.

The former Goldman Sachs economist, who sits on the monetary policy committee responsible for setting interest rates (MPC), said the bank had already “done a lot” to rein in soaring inflation.

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He added that the full effects of rate hikes – from 0.1% in December 2021 to 4% now – have yet to be fully felt by the economy. “Interest rates have risen by nearly 400 basis points in just over a year and given the lags in the transmission of monetary policy, much of the effects of these interest rate hikes must still be felt.

“It’s important that we guard against the possibility of overdoing it,” he told Times Radio.

Pill said the Bank needed to maintain a “Zen” balance in its aim to bring inflation back to its 2% target. Inflation is now 10.5%, after peaking at over 11% last year.

As the central bank expected inflation to reach its target by the middle of next year, Pill warned to be careful that companies do not get used to raising prices , which could prolong the problem.

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The Bank raised interest rates for the 10th straight time by half a percentage point to 4% on Thursday, adding pressure on mortgage payers and borrowers.

But he was more optimistic about the economic outlook, saying if Britain were to go into recession this year it would be shorter and shallower than expected.

The assessment brought mild relief to UK analysts amid signs that the pain facing the UK economy was not yet over.

Services companies recorded their weakest performance in two years last month, the data showed, as growth was hampered by reduced business and consumer spending. S&P Global said its index of activity in the sector – where 50 is the boundary between growth and decline – fell from 49.9 in December to 48.7 in January.

It was its lowest level since January 2021, when the country was under a tough Covid lockdown.

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Tim Moore, chief economics officer at S&P Global Market Intelligence, said the data showed the economy “at risk of sliding into recession” as it was hit by labor shortages, labor disputes and unemployment rates. higher interest.

But there were some positive signs as the reading was lower than previous estimates of 48. Business optimism also hit its highest level since April last year, with business leaders turning more optimistic that the worst was over.

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