"I think that framework is a little simplistic," he said.
Instead, policymakers needed to consider the risk that
recent very high inflation had broken the linear relationships
between economic variables which the BoE's main forecasting
models are based on, he said.
On Tuesday, the International Monetary Fund upgraded its
outlook for Britain's economy but still expects it will contract
more this year than in any other major Western economy.
In his comments on Thursday, Pill said British wage growth
appeared to be slowing and that the inflation-neutral level of
unemployment was probably higher than before the coronavirus
pandemic.
(Reporting by David Milliken
Writing by William Schomberg, Editing by William Maclean)
(Adds Pill on policy implications of inflation forecasts,
paragraphs 8-10)
By David Milliken and William Schomberg
LONDON, April 13 (Reuters) - Bank of England Chief
Economist Huw Pill said on Thursday that the latest data on the
economy, including a stagnation of gross domestic product in
February, is "somewhat disappointing" even if it remains better
than forecast by the BoE late last year.
Pill, speaking at an online event hosted by MNI Connect,
said GDP data published earlier on Thursday and other measures
of output were relatively flat and at levels close to
pre-pandemic levels.
"That is of course somewhat disappointing from an overall
point of view, but I think it is important to recognise that
that profile is much better than what we had in the MPC's
forecasts in the second half of last year," he said.
Last month the BoE raised its key interest rate to 4.25%
from 4% - its 11th consecutive rate rise since starting to
tighten policy in December 2021 - and financial markets see a
roughly 64% chance of a further rate rise to 4.5% in May.
Pill - one of the Monetary Policy Committee's (MPC) nine
members - also said inflation may be "bumpier than we expect"
but was still expected to fall in the second quarter as last
year's surge in energy prices drops out of annual comparisons.
British consumer price inflation unexpectedly rose to 10.4%
in February and last week Pill said the central bank still
needed to "see the job through" on monetary policy tightening,
though he did not directly commit to a further rate rise in May.
The BoE has also highlighted how the economy has yet to feel
the full force of its past interest rate rises, and two of its
policymakers think the central bank has already over-tightened.
However, Pill said it was wrong to focus on BoE forecasts
which show inflation well below 2% in two years' time - a metric
which the central bank has often used in the past as a signal
that policy is too tight.
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