It's too early to declare victory in the fight against inflation, warns Bank of England

Hugh Pill says there is work to be done to get back to the 2 percent target. Photo: Holly Adams/Bloomberg

That's true. It is too early to declare victory in the fight against inflation, the Bank of England's chief economist has warned, as he indicated interest rates will remain high for a long time.

Hugh Pill said inflation at 6.7% was still «well above» UK target is 2%, leaving the Bank «work to do» to bring price rises under control.

He said: «We are not we can calm down. We have something to work on. It is important not to declare victory prematurely.”

For now, Mr. Pill and the rest of the nine-member Monetary Policy Committee, led by Gov. Andrew Bailey, have raised interest rates from 0. 1% in December 2021 to 5.25% today.

They kept rates at this level. levels last month, raising hopes they had peaked.

However, Mr Pill said the fall in inflation so far had largely been driven by lower energy prices rather than a slowdown in persistent growth wages.

He said: “The reduction in overall inflation is clearly a positive development from our point of view in terms of our mandate.

“[But] this persistent component of inflation may be more difficult to push out of the system. And if we have a persistent inflation component, it seems natural to me that we have a persistent monetary response to it.

“The fact that overall inflation is falling is certainly not enough for us to say, “ The work is done, you can move on.”

In September, Mr Pill used South Africa's Table Mountain to illustrate that interest rates would remain high for a long time.

Speaking at the OMFIF Economic and Monetary Policy Institute on Monday, he said: “The UK's headline inflation rate is still well above target. It is decreasing, but the goal is not to reduce inflation, but to achieve the target of 2% on a long-term and achievable basis.

«So we still have some work to do to get back to 2pc, and we'll probably have to do some things to ensure that when we get back to 2pc, we do it in a sustainable way.»

The scale of the wage rise was evident in the latest Bank of England data, which showed average weekly earnings in the three months to July were up 8.5% on the same period last year.

>The chief economist said that unless this was accompanied by strong productivity growth, it risked fueling inflation.

He said: “I would be happier if wage growth was 5% rather than 8% by official standards? Yes, I would be happier.”

However, he said he does not want rising unemployment to be a means of curbing inflation: “The main thing for us is to return headline inflation to 2% on a long-term and sustainable level.”

“To do this, of course, we need to ensure that macroeconomic developments in terms of pricing, wage setting, margin behavior, market behavior, etc. are compatible with this.< /p>

“I don’t think this can be achieved by increasing unemployment.”