8th Aug 2025 14:18
(Alliance News) - The top economist at the Bank of England has warned there is an increased risk of "persistent inflation" despite the central bank cutting interest rates.
Huw Pill, chief economist at the bank, stressed there has been "progress" in bringing inflation down in recent months, in a briefing following the latest interest rate decision.
It came a day after the bank's rate-setting committee voted to reduce the base interest rate to 4.00% from 4.25% – its lowest level for more than two years.
The bank has used elevated interest rates in a bid to bring inflation sustainably down to the 2% target rate set by the government, after inflation spiked in 2022.
Latest figures from the Office for National Statistics showed that UK consumer price inflation accelerated to 3.6% in June.
On Thursday, the bank said inflation is likely to rise to 4% in September before steadily falling and stabilising around 2% in 2027.
In his briefing on Friday, Pill indicated there could be more interest rate cuts but said heightened risks regarding inflation could affect this.
He said: "There is some shift in the balance of risks on inflation. There is a risk of spillover into more persistent inflation.
"When inflation is high due to external forces, we need to be aware of the risk they might affect domestic price-setting."
The Bank of England indicated that recent increases to the national minimum wage and National Insurance contributions had partly contributed to a recent uptick in food prices.
Pill stressed the bank will continue to act to sustainably bring down inflation but added that there is "no set path" for interest rates.
He said: "Our mandate is that we will get inflation to 2%, that's the target, on a sustainable rate. We will do whatever we need with the Bank rate to do that
"They may be a bit lower than where we are but nothing is set."
Financial markets are currently expecting one more rate cut this year, before another cut next year, with interest rates likely to stabilise close to 3.5%.
By Henry Saker-Clark, PA Deputy Business Editor
source: PA
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