The Bank of England is trying to bring down inflation without causing too much pain to Britain's economy, Chief Economist Huw Pill said on Friday, a day after the BoE hiked borrowing costs sharply and warned of a long recession.
"What we are seeking to do, we're always seeking to do, is to find that
balance that gets us back to our 2% inflation target without generating
unnecessary and costly problems in the real side of the economy," Pill
told CNBC television.
"Creating that balance, signalling that balance, that was really our key
message yesterday."
On Thursday, the BoE raised its benchmark rate by three quarters of a
percentage point to 3.0% as it sought to combat risks from an inflation rate
running above 10%.
It also warned investors that the risk of Britain's longest recession in at
least a century means borrowing costs are likely to rise less than they expect.
Pill repeated the BoE's message that rates were likely to go up but bets by
investors on how high Bank Rate is likely to go during the recent period of
political and market turmoil in Britain went "a little bit too far in one
direction."
Britain's bond market suffered weeks of heavy selling triggered by the tax cut
plans of former prime minister Liz Truss that she had to abruptly reverse, and
which led to Truss being replaced in Downing Street by Rishi Sunak last week.
Advertisement · Scroll to continue
After being forced into emergency action to support the gilt market, Pill said
the BoE was now trying to get back to steering the economy out of its
cost-of-living crisis caused by high inflation that is running at more than 10%.
"I think we've had a clearly quite disturbed period in the UK markets, in
the UK political economy, in the UK economy over the last few months," he
told CNBC. "(We're) trying to re-anchor our own thinking in the more
fundamental drivers ... I think we're trying to re-anchor our communication."
"I think we're hoping, and we're intending, that gives an opportunity for
markets to re-anchor their thinking and ultimately their pricing."
The task of getting inflation under control was likely to be a painful one,
Pill said.
"(The) slowdown in the economy is what we anticipate is required to
contain domestic inflationary pressures to achieve our targets," he added.
Source: Reuters