Published by Global Banking & Finance Review®
Posted on February 13, 2026
3 min readLast updated: February 13, 2026
Add as preferred source on GoogleBoE's Huw Pill estimates UK's underlying inflation at 2.5%, above the 2% target, influencing interest rate decisions.
By David Milliken
LONDON, Feb 13 (Reuters) - Bank of England Chief Economist Huw Pill said underlying inflation in Britain was settling at about 2.5% a year, higher than the BoE's 2% target, which made it inappropriate to cut interest rates further.
Pill has voted against the BoE's last four interest rate cuts and said interest rates were now "a little bit too low", although just about high enough to be putting some downward pressure on inflation.
"I still think we're sufficiently restrictive - although there's some ambiguity there - that holding at this level and being cautious will be enough," he said at an event in London hosted by the bank Santander.
POLICYMAKERS DIVIDED ON FUTURE RATE CUTS
After cutting rates six times since August 2024, the BoE's Monetary Policy Committee is now divided on how much further, if at all, rates should fall.
The MPC's last three meetings have resulted in 5-4 splits and financial markets see just one or two more cuts this year - though the narrow majority was in favour of a hold last week, and remarks by Governor Andrew Bailey made some economists think the next cut could come as soon as March.
The BoE forecasts inflation will fall sharply from 3.4% in December to close to its 2% target in April or May, largely due to one-off effects related to regulated prices and measures from finance minister Rachel Reeves' November budget.
Pill said he worried that the return to target would be temporary.
"I think when we look at where we are now, short of something happening, underlying inflation is going to be two and a half percent, once we take that half-percentage-point impact from the budget out of the forecast we have for April-May," he said.
In minutes of February's decision, Pill said interest rates had been cut too fast previously and that inflationary pressures stemming from that "still need to be contained and eliminated".
PILL SEES 'SHALLOW SAUCER' PATH FOR WAGES AND PRICES
In his comments on Friday, Pill likened the outlook for businesses' wage and price-setting plans to a "shallow saucer" with a small dip followed by a rise at the end and repeated his view that the cooling of inflation pressures was incomplete.
"In order to complete that (disinflation) process, monetary policy has a part to play and that means we do need to retain some restrictiveness in the stance of monetary policy until that process of disinflation is complete," Pill said.
Four of the MPC's nine members last week voted for a rate cut due in large part to concerns about a slowdown in the labour market, where the jobless rate has risen to its highest in nearly five years.
But Pill said much of the recent rise in unemployment could be due to structural factors, rather than a cyclical slowdown that could be ameliorated by rate cuts.
"The important thing to say is growth in the UK is positive ... we're not seeing some sort of collapse in activity," he said.
(Reporting by David MillikenEditing by William Schomberg, William Maclean)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured as an annual percentage increase.
The Bank of England is the central bank of the United Kingdom, responsible for issuing currency, managing monetary policy, and maintaining financial stability.
Interest rates are the amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal. They influence economic activity and inflation.
Monetary policy is the process by which a central bank, like the Bank of England, manages the supply of money and interest rates to achieve specific economic goals.
Underlying inflation refers to the long-term trend in inflation, excluding temporary price changes caused by volatile items like food and energy, providing a clearer picture of inflationary pressures.
Explore more articles in the Finance category
