Huw Pill: Inflation persistence and monetary policy

Text for the International Centre for Monetary and Banking Studies (ICMB) by Mr Huw Pill, Chief Economist and Executive Director for Monetary Analysis of the Bank of England, at the Graduate Institute, Geneva, 4 April 2023. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

Accompanying slides of the speech. 

Good evening everyone.

It is a great pleasure to talk under the auspices of the International Centre for Monetary and Banking Studies (ICMB) this evening. Thanks in particular to Professor Panizza for extending the invitation. I look forward to a stimulating debate.

Let me start with some stark and uncomfortable facts. Annual UK CPI inflation was 10.4% in February. That is unacceptably high. The Bank of England's Monetary Policy Committee (MPC) is committed to returning inflation to its 2% target on a sustainable basis.

By doing so, the MPC will not only deliver on its mandate, but will also create an environment of price stability in which households and firms can take the longer-term investment and spending decisions that drive the dynamism, innovation and productivity gains on which UK living standards depend.

The MPC has tightened monetary policy over the past eighteen months to achieve the 2% inflation target. Bank Rate has been increased from its effective lower bound of 0.1% to today's level of 4.25%. Quantitative easing (QE) has been halted and replaced with a programme of quantitative tightening (QT), involving the sale of gilts and corporate bonds held as a result of the Bank's earlier asset purchase schemes. And the MPC's communication about the outlook for monetary policy has shifted significantly.

Picking up on this lattermost point, in the monetary policy summary published following March's MPC meeting, the Committee noted: "if there were to be evidence of more persistent [inflationary] pressures, then further tightening in monetary policy would be required".