The Bank of England may need to cut interest rates earlier and faster as the impact from previous increases drags down the economy and pulls back inflation, one of its senior policymakers has said.
Following a dramatic drop in global energy prices, Silvana Tenreyro, a member of the central bank's rate-setting monetary policy committee (MPC), said there were indications inflation will fall "well below" the central bank's 2% target rate.
In a speech to the Royal Economic Society’s annual conference in Glasgow, she said: “I expect that the high current level of Bank rate will require an earlier and faster reversal, to avoid a significant inflation undershoot.”
Last month, the Bank increased interest rates for the eleventh time in a row, to 4.25%. At the MPC's upcoming meeting in May, the financial markets anticipate another quarter-point rate increase, with a more than 50% possibility of another increase by August.
Huw Pill, a different member of the rate-setting committee, said in separate remarks that the central bank must continue to take precautions against the possibility that inflationary pressures last longer than anticipated.
In contrast to Tenreyro, the Bank’s chief economist said Threadneedle Street could not be sure it had raised interest rates enough to tame inflation. “On balance, the onus remains on ensuring enough monetary tightening is delivered to ‘see the job through’ and sustainably return inflation to target,” Pill said.