Bank of England risks overdoing interest rate hikes, chief economist admits

Bank Chief Economist Hugh Pill Photo: Holly Adams/Bloomberg

The Bank of England is also at risk of raising interest rates, its chief economist admitted he is far behind in its efforts to bring inflation back under control.

Hugh Pill, the Bank's chief economist, acknowledged that «we may be doing too much» to curb price increases as analysts warned that excessive tightening would lead to an «unnecessary recession» in the country.

Speaking to businesses a day after the Bank's Monetary Policy Committee (MPC) raised interest rates by a quarter of a point to 5.25%, Mr Pill acknowledged that rapid rate hikes risk stifling economic growth.

It could push up inflation a lot. below the Bank's target by 2% due to a slowdown in activity.

Bank officials also warned that Britain risks an economic crisis as tenants are more vulnerable to cash shortages in the face of rising bills.

> 0308 Bank rate hits 5.25

A separate analysis by Threadneedle Street found that many tenants are facing «material financial hardship» as landlords forgo higher mortgage costs. It says many renters have little to no savings, and many have «significant amounts of unsecured debt,» including credit cards that they find it difficult to repay due to rising shopping bills and rents.

< p> The analysis is published. The bank said on Friday: «Tenants could pose financial stability risks if they drastically cut spending or default on their financial obligations.»

“Higher debt and lower savings will make renters more likely to face difficult financial choices in the future, such as default or spending cuts, which could trigger or exacerbate a broader economic downturn.”

Economists fear that raising rates will also lead to this. will far destroy growth and raise unemployment more than is necessary to bring inflation down to the Bank of England's 2 percent target.

Julian Jessop of the Institute of Economics said: «It's already clear that disinflation is in the pipeline, so they increased the risks of the economy sliding into an unnecessary recession.”

“But when you realize that you have done too much, it will be too late, because the damage is already done.”

Inflation fell from a peak of 11.1% in October last year to 7.9% in June. The Bank expects price growth to slow to just under 5% by the end of the year and return to its target of 2% by 2025.

CPI inflation rate (forecast)

Carsten Jung, Economist at the Institute for Public Policy Research and a former Bank of England analyst, said officials had already gone too far, with painful consequences for households.

Families and businesses are already feeling the “triple impact”. higher mortgage rates, higher rents and the start of a slowdown in the economy,” he said.

But “most of the problems are still ahead” as it usually takes about 18 months for the full impact of higher loans. the cost of feeding the economy.

“There is a real possibility that as things develop, we will have a recession next year and we will also have a long period of low growth,” he said .

However, Mr. Pill also stressed that there is a danger of doing too little to curb inflation, prompting a majority of nine MPC members to vote in favor of the fourteenth rate hike.

< p> mean we let the economy and the demand in the economy grow too fast,” Mr. Pill said.

This could lead to “more inflationary pressures persisting,” which means rising costs of living. the crisis will put pressure on families even longer.