Speaking at a briefing held by Barclays, Pill said the MPC’s decision to cut the base rate by 25 basis points (bps) to 4.25% this month represented its “gradual and careful” withdrawal of monetary policy restriction.
Pill voted to hold the base rate, saying he believed it plateaued at a “slightly too low” level in 2023, and the committee had “started cutting bank rate slightly too early in 2024”.
The base rate was cut to 4.25% on a vote of 5:4 in May, with Pill and Catherine Mann favouring a hold, while Alan Taylor and Swati Dhingra wanted a larger reduction to 4%.
Pill has voted to hold the base rate since August, when it was held at 5%, and he favoured an increase to 5.25%.
He said the pace should be cautious and run slower than the 25bps cut per quarter the MPC has implemented since August last year.
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Pill said his vote to hold the base rate at 4.5% in May was him favouring a “skip” in the withdrawal of monetary policy restriction with an intention to slow the pace, rather than a halt.
He added that the withdrawal of policy restriction had been “running a little too fast of late, given the progress achieved thus far with returning inflation to target on a lasting basis”.
Inflation fell to 2.6% in March, lower than the market’s expectation of 2.7%.
Pill said: “As I have argued consistently since last spring, I am concerned about the potential inflationary impact of structural changes in price and wage setting behaviour, following the experience of prolonged, well above-target inflation in recent years.”
He also said the need for a slower-than-average withdrawal of monetary policy restriction would match the slower-than-average disinflation.
“Or to put it another way, while progress with disinflation is a signal that monetary policy restriction can be removed over time, progress with disinflation is also a signal that monetary policy restriction is working – and as long as disinflation back to target is not complete, maintenance of some restriction will still be required,” he added.
