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BoE's Huw Pill Finds Latest UK Economic Data Disappointing

Bank of England Chief Economist Huw Pill expressed disappointment with the latest UK economic data, which revealed a stagnation of gross domestic product in February. Despite the lackluster performance, Pill noted that the current situation is better than the BoE's forecast from late last year.

Huw Pill
Huw Pill

GDP Data Close to Pre-Pandemic Levels

At an MNI Connect event, Pill shared that recently published GDP data and other output measures were relatively flat, hovering near pre-pandemic levels. He emphasized that the current economic profile is still an improvement over previous forecasts from the Monetary Policy Committee (MPC).

BoE Continues Interest Rate Hikes

In March, the BoE increased its key interest rate to 4.25% from 4%, marking the 11th consecutive rate hike since December 2021. Financial markets now anticipate a roughly 64% chance of a further rate increase to 4.5% in May.

Inflation Predicted to Fall in Q2

Pill, a member of the MPC, expects inflation to be "bumpier than we expect" but to fall in the second quarter as last year's energy price surge drops out of annual comparisons. British consumer price inflation unexpectedly rose to 10.4% in February.

Policymakers Debate Over-Tightening

While the BoE has warned that the economy has yet to feel the full force of past interest rate increases, two of its policymakers believe the central bank has already over-tightened. Pill argued against relying solely on BoE forecasts that show inflation well below 2% in two years, calling the framework "simplistic."

Considering Non-Linear Relationships

Pill suggested that policymakers consider the risk that recent high inflation has disrupted linear relationships between economic variables. These relationships form the basis of the BoE's main forecasting models.

IMF Upgrades UK Economy Outlook

The International Monetary Fund upgraded its outlook for the UK economy earlier this week. However, it still expects the UK to contract more this year than any other major Western economy. Pill also mentioned slowing British wage growth and a likely higher inflation-neutral level of unemployment than before the pandemic.