Bank of England warns against cutting interest rates too quickly

Hugh Pill, the Bank of England's chief economist, is concerned that UK interest rates are being cut too quickly. He calls for a more cautious approach than quarterly cuts.

The majority of the Monetary Policy Committee (MPC) supported May's quarter-point rate cut to 4.25%. Pill was one of two committee members who opposed it. He voted in favor of keeping the rate unchanged.

Pill characterizes his dissent as a recommendation to skip a rate cut this quarter to slow the pace of monetary easing rather than an approval to stop or reverse the process of removing monetary restrictions.

He believes the central bank's rate was set too low in 2023 and began falling earlier than expected—in 2024. To compensate for this, the pace of rate cuts should be approached cautiously.

Workers in the UK are being affected by high service inflation and are struggling to raise their wages, which have slowed in growth. Lowering the interest rate too quickly could potentially accelerate inflation. Pill is concerned about the pro-inflationary impact on prices and wages.