Huw Pill’s Take on August Interest Rate Cut: “When-Rather-Than-If”

July 10, 2024

Huw Pill, the Bank of England’s chief economist, remains unconvinced about an imminent interest rate cut in August, though he acknowledges that a reduction is more a matter of “when rather than if.” Speaking at Asia House in London, Pill highlighted recent economic data indicating potential risks in inflation persistence, particularly citing services inflation and wage growth as key indicators.

Inflation and Wage Growth Indicators

According to City A.M Pill emphasized that annual services inflation and wage growth continue to show underlying inflationary strength. May’s services inflation was 5.7%, a slight decrease from April’s 5.9%, while private sector annual wage growth hovers around six per cent. Despite the headline inflation rate meeting the target, concerns remain about maintaining it at two per cent due to these persistent price pressures.

Assessment of Inflation Dynamics

Acknowledging the noisy nature of the data, Pill pointed out that inflation persistence in the UK is, indeed, proving persistent. He underscored the necessity of further data to inform the Bank’s next policy decision at the MPC meeting on August 1, while expressing scepticism about how much influence a couple of data releases can have on their overall assessment.

Market Reactions

Following Pill’s remarks, the pound saw a nearly 0.4% rise against the dollar, and the FTSE 100 dipped as traders adjusted their expectations for an August rate cut, reducing the perceived probability from over 60% to 50%.

Impact of Current Policies

Despite inflation concerns, Pill asserted that higher interest rates have been effective in containing inflationary pressures. He noted that the latest data support the view that these pressures are now contained and may be reverting to levels consistent with the inflation target. In the absence of significant new shocks, Pill reaffirmed that the expectation of future rate cuts is more about timing rather than possibility.

Jonathan Haskel and the MPC’s Caution

The Bank of England has held interest rates at 5.25% since August 2023, a decision influenced by inflation concerns and a tight labour market. Jonathan Haskel, another MPC member, stressed caution, pointing out that while inflation hit the 2% target in May, it might rise again due to economic pressures.

Factors Influencing the Decision

Several factors influenced the Bank’s decision to maintain rates. The labour market remains tight, with rising unemployment and falling vacancies, exerting upward pressure on wages. Additionally, the UK has faced economic shocks, such as high energy prices, which have made achieving sustained inflation reduction challenging. Despite CPI inflation dropping to the 2% target, underlying pressures persist, necessitating a cautious approach.

Economic and Investor Implications

Maintaining high interest rates can dampen consumer spending and business investment, potentially slowing economic growth. For investors, higher rates present both challenges, like reduced corporate profits, and opportunities, such as more attractive UK bonds.

Comparative Analysis with the ECB

The Bank of England’s cautious stance contrasts with the European Central Bank’s (ECB) recent rate cut. In June, the ECB reduced its main refinancing rate to 4.25%, aiming to stimulate economic activity amid declining inflation. This divergence in policies reflects differing economic conditions and priorities between the UK and the Eurozone. Investors need to navigate these differing landscapes, balancing risks and opportunities across regions.

Future Expectations and Investor Recommendations

The Bank of England’s approach suggests that interest rates will stay elevated until clear evidence shows inflationary pressures have sustainably subsided. Investors should prepare for market volatility and potential policy shifts, diversifying portfolios with equities, bonds, and alternative assets. Staying informed about economic indicators and central bank decisions is crucial for making timely investment choices. Understanding the potential for divergence in monetary policies between the Bank of England and the ECB will also help investors capitalize on opportunities in currency markets and cross-border investments.


The cautious stance of the Bank of England underscores the complexities of the current economic landscape, marked by persistent inflation and a tight labour market. Investors must remain vigilant, adapting to ongoing market fluctuations and the evolving monetary policy environment to navigate risks and seize emerging opportunities.