We’re not “inflation maniacs,” says a top Bank of England economist

The Bank of England accepted a record amount of gilts in a reverse auction on Wednesday.

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LONDON — Bank of England policymakers are not “inflation maniacs,” but tightening monetary policy is needed to prevent rising prices from becoming entrenched in the economy, the central bank’s chief economist Huw Pill said on Tuesday.

The Bank’s Monetary Policy Committee raised interest rates by 75 basis points last week, the largest hike since 1989, despite warnings that the UK economy is facing the longest recession on record.

“We’re not supposed to be inflation nuts. We should manage this compromise in a way that avoids unnecessary, perhaps counterproductive, disruption to the real economy,” Pill said at a conference organized by Swiss bank UBS.

Alongside its monetary policy announcement last week, the bank took the unusual step of questioning the market’s pricing of future rate hikes, suggesting the final rate is likely to be below market expectations.

Pill said he was “skeptical” that raising rates ahead of the rate hike would help dampen expectations and bring about “flawless disinflation” with no real cost to the economy. The Bank of England has come under fire for being too slow in its efforts to curb skyrocketing inflation.

“Unfortunately, I think the Phillips curve hasn’t gone away. There’s debate about what the slope of the Phillips curve is and how that’s changing, but the Phillips curve hasn’t gone away and the weakening of the economy is, to some extent, a necessary part of the disinflation you need to see “, he said.

The Phillips curve is an economic model that argues that inflation and unemployment are inversely correlated.

Pill also stressed that the weakening of the UK economy so far has not been caused by monetary policy alone, as external factors such as rising energy prices and supply shocks weigh on household incomes.

“I think there is a risk, as we are aware, that we at the Bank of England and the MPC will be blamed for the recession. The recession was actually driven by other forces, and we’re trying to manage the adjustment with those other forces,” Pill said.

“One of the reasons for central bank independence is that we don’t have to be popular, we can still make the right decisions, and I think making the right decisions is our core goal.”