Foundations laid for rate hike, signals Bank of England chief economist

The Bank of England’s chief economist has given one of the strongest signals yet that the Old Lady will hike interest rates next month.

Huw Pill, Threadneedle Street’s chief wonk, told the Confederation of British Industry’s (CBI) annual conference today that “the ground has now been prepared for policy action”.

Pill highlighted a string of data published recently has illuminated the scale of inflationary pressures in the UK economy, which could spark the Bank into action.

Pill said he supported the Bank’s remarks in its latest monetary policy report that rates will have to rise in the “coming month”.

“Given where we stand in terms of data and analysis, I view the likely direction of travel for monetary policy from here as pretty clear,” Pill said.

Several economic indicators published this month will have made for sobering reading for the Old Lady.

The Office for National Statistics said inflation scaled to 4.2 per cent, more than double the Bank’s two per cent target and the highest print in nearly a decade.

IHS Markit, the firm that produces the closely watched purchasing managers’ indexes, said UK private sector costs increased in November at the fastest pace since January 1998.

Yesterday, the CBI published research that found retailers are raising prices at the quickest clip since 1990.

The Old Lady confounded financial markets earlier this month when it decided to leave interest rates at a record low 0.1 per cent despite forecasting inflation will hit five per cent next spring.

Pill did warn the trajectory of the UK economy is uncertain, meaning the Bank could provide no guarantees over the direction of policy.

Bets on a rate hike at the Bank’s next meeting on December 16 have been partly unwound today after investors were spooked by a new Covid-19 variant that could derail the global fight against the virus.