Source - Alliance News

Bank of England Chief Economist Huw Pill conceded raising interest rates in the fight against inflation will slow economic growth, but maintained it is required to stabilise the economy in the longer term, Bloomberg reported on Wednesday.

‘It’s very important that we use monetary policy to prevent that high level of inflation from getting ingrained,’ Pill said in a virtual Q&A. ‘In the short term higher interest rates means higher mortgage payments. It probably also means some slowing in the economy.’

Earlier this month, the BoE raised UK interest rates by 50 basis points to 1.75% from 1.25% - the biggest rate hike since 1995. The decision came after the UK inflation rate raced to 9.4% in June, reaching a 40-year high.

Pill maintained increasing rates will help to ‘head off that ingrainedness’ of rising prices, which is ‘very disruptive to society’ as it makes it harder for businesses to plan, and for investors to save, Bloomberg reported.

‘There are no easy solutions to these challenges. There is an element of take your medicine. But taking your medicine makes you better in the end,’ Pill added.

He reaffirmed the importance of the BoE sticking to its inflation target of 2%, seeming to brush off comments from Conservative Members of Parliament pushing for the government to re-examine the Central Bank’s remit, Bloomberg added.

‘Now is the time to double down on 2%, not to abandon 2%. We’re taking a short-term hit in order to get a long-term benefit. That is what an independent central bank that doesn’t have to fight by-elections and can take a longer term view can do.’

Skirting the issue of the BoE’s forecast for a recession that will start in the fourth quarter, Pill maintained the goal is to bring inflation back down, while doing as little harm as possible.

‘We’re not trying to engineer a slowdown. We’re trying to engineer a balance. It’s about steering not too much and not too little but just right. We’re using interest rates in order to steer the economy and ensure its stability.’

https://www.bloomberg.com/news/articles/2022-08-10/boe-chief-economist-acknowledges-inflation-fight-to-slow-growth?srnd=premium-uk

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