The interest rate could fall this year as a “reward” to the economy for reducing inflation, said Huw Pill, chief economist at the Bank of England (BoE).
The economist was among six members of the bank’s monetary policy committee who voted last week to keep the benchmark interest rate at 5.25 percent, while two officials voted for an increase and one for a cut.
Pill said there could be cuts from the current 16-year high of 5.25% if inflation this year is in line with expectations.
In a question and answer session on the webcast, he said: “Lower interest rates are a reward for the economy for better inflation performance. The focus is more on the when than the if, I think, and the governor has tried to focus on that.”
Governor Andrew Bailey signaled that the central bank was ready to ease its monetary policy, but only when there was more evidence that inflation was moving in the right direction.
Read more: BP expands share buybacks despite falling profits
“The debate has shifted somewhat toward the question, ‘When is the time when we have enough evidence that we can begin to loosen monetary constraints on the economy and lower the policy rate?'” Pill said.
“The governor has tried to focus on the ‘when’ rather than the ‘if,'” Pill added.
The main measures the BoE is looking at are wages and services prices. He stressed that these do not need to be cut back to the targeted 2% level because interest rates are already “restrictive,” meaning they are dampening activity and prices.
“We don’t need to see inflation return to 2% on a baseline basis to start cutting the policy rate because we are at a restrictive level. We can cut the policy rate a little bit and monetary policy would still be restrictive,” he said.
Read more: Trend ticker: Nvidia, Alibaba, BP, Coinbase
Inflation has fallen sharply from highs of over 11% and is currently at 4%.
However, the Organisation for Economic Co-operation and Development (OECD) said on Monday that Britain will face the highest inflation rate among the G7 countries this year and next.
Attention: Bank of England says interest rates will be “reviewed”
Download the Yahoo Finance app, available for Apple And Android.
