The courage not to act − remarks by Huw Pill

In this speech, Huw discusses why he voted to leave Bank Rate unchanged at the May MPC meeting. 

He characterises that vote as favouring a ‘skip’ within a continuing withdrawal of monetary policy restriction, rather than a halt to the process of withdrawal itself. Huw argues that, while the underlying disinflation process remains intact, the quarterly pace of 25bp Bank Rate cuts seen since last summer is too rapid given the inflation outlook – in line with his preference for a “cautious and gradual” pace for the withdrawal of policy restriction over the past year. 

This caution derives from Huw’s concern that structural changes in price and wage setting behaviour have increased the intrinsic persistence of the UK inflation process. He illustrates these concerns and their implications for monetary policy  using a simple model of the UK macroeconomy that incorporates – in contrast to the standard Bank of England models used to construct the baseline forecast and scenarios presented in the MPC’s latest Monetary Policy Report – a role for ‘real income resistance’ in price and wage determination. Scenarios based on this model helped develop and explain his MPC vote.