The next step could be to raise interest rates, says senior Bank of England official

Mr Pill identified the Middle East as key among «potentially other threats to the stability of the UK economy». Photo: Suzanne Plunkett/Reuters

The Bank of England may raise interest rates next time instead of cutting them, its chief economist has said, in a clear departure from Governor Andrew Bailey.

Hugh Pill warned there were dangers from «developments». in the Middle East, for example, that if they do emerge, we will have to respond to them, and that will certainly change my assessment of the speed or even direction of future rate movements.»

The comments came the day after as Mr Bailey suggested in a press conference and television interview that the next rate hike would likely be a cut.

Mr Pill said that even if there was no escalation in the Middle East, sustained pressure on inflation from wages, the labor market and prices in the service sector means that “the moment when a reduction in bank rates becomes possible is still a long way off.”

He said: «We don't have enough evidence yet.»

The Bank's Monetary Policy Committee (MPC) voted on Thursday to keep the rate at 5.25% and suggested inflation would fall to 2% in April. Two MPC members voted for cuts, one for increases, and six others for maintaining the status quo.

Mr. Bailey on Thursday declined to give a timeline for the first rate cut but did little to dampen expectations that it would happen. Speaking to Sky News, he said: «The decision, if the world doesn't change, and of course unfortunately the world does, especially at the moment, the next decision is likely to be when we cut.»

< p>It came as expectations for a US rate cut were pushed back on Friday after analysts were stunned by much stronger-than-expected employment figures.

U.S. nonfarm payroll employment rose by 353,000 in January, according to the U.S. Bureau of Statistics. The labor statistic was nearly double the consensus forecast of 180,000, a sign that high rates are not holding back growth and that a significant drop in borrowing costs could fuel inflation.

Matthew Ryan, head of market strategy and Finance services firm Ebury said: «Today's jobs report has all but eliminated any lingering possibility of a March interest rate cut by the Federal Reserve.»

The Fed had previously voted to keep rates at 5.25-5. 5%. the company said this week it needed «greater confidence» that inflation was moving towards its 2% target.

James Knightley, ING's chief international economist, called the figures «stunning.»

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He said: “The January US jobs report is insanely strong. The job creation momentum is picking up again, but this time it's not just about leisure and entertainment. Hospitality, Government & Education & medical services.»