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BoE Chief Economist Huw Pill indicated in a speech today that while a rate cut is “somewhat closer” now, it remains “some way off” in his baseline scenario.

Pill emphasized that the MPC’s evaluation of the inflation outlook is concentrated on the “persistent component” of consumer price inflation. This focus includes three critical indicators: services price inflation, pay growth, and the tightness of the UK labor market.

Pill noted current signs of “downward” shift in the persistent components of inflation dynamics. However, he also highlighted that there is still a “reasonable way” to go before he can be convinced that the underlying inflation has stabilized at rates consistent with achieving the 2% inflation target sustainably.

Given these conditions, Pill underscored the need for the MPC to “maintain a degree of restrictiveness” in monetary policy to effectively “squeeze the persistent component out of the system.”

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