Soaring UK wages spur inflation risks, says BoE chief economist

Bank of England Chief Economist Huw Pill said the strength of the labor market and soaring wages mean that policymakers can't yet turn their focus away from fighting inflation.

Speaking a day after Governor Andrew Bailey said it's too early to talk about the possibility of reducing interest rates, Pill said “more persistence in wage and price dynamics” suggest “we can be less sanguine” about a slowing economy reducing inflation.

The remarks reinforce BOE efforts to temper expectations in financial markets. Investors priced in the possibility of three quarter-point cuts from the second half of 2024 after the BOE on Thursday kept interest rates unchanged and predicted the economy faces over a year of stagnation.


“We haven't really yet entertained consideration of cutting rates at this moment,” Pill said in a web event Friday. “Our concern is ensuring we do enough in order to bring inflation on a lasting sustainable basis back to target.”

Pill said the evidence of the labor market easing was mixed, with the slowdown more pronounced in sectors such as hospitality than in business services.

“The overall position of the labor UK labor market, although loosening, still remains pretty tight by historical standards, and that is what underpins some of this potential persistence and strength in wage developments,” he said.