BoE should be talking tough on interest rates not wages

The Bank of England’s Chief Economist, Huw Pill, came under fire this week for comments that implied businesses should stop raising their prices and workers should stop asking for pay increases. But as the Bank can’t directly influence profits and wages, it would have been better off talking tough on interest rates to lower inflation expectations instead. We think Bank Rate will rise to a peak of 4.50% and stay there all year. The risk is that rates rise a bit further or stay at 4.50% for longer. That risk may have been smaller if the Bank had talked tougher on interest rates earlier in this tightening cycle.