by David Milliken and Andy Bruce

LONDON (Reuters) – A cut in key rates from the Bank of England (BoE) is still a distant prospect, its chief economist, Huw Pill, said on Tuesday, while welcoming the slowdown in inflation in Britain.

According to Huw Pill, there is more risk of cutting rates prematurely than of keeping them at their current level, despite signs showing a reduction in inflationary pressures.

The words of the BoE’s chief economist led investors to reduce their expectations of monetary easing, with the date of August no longer being considered 100% certain for a first rate cut.

“The combination of an absence of (bad) news and the passage of time (in slowing inflation) has brought (the timetable) a little closer to a cut in the bank rate,” Huw Pill said in a speech at the London campus of the University of Chicago Booth School of Business.

“But this same absence of news gives me no reason to deviate from the baseline that I have already established,” he added, specifying that he wanted to stick to the opinion expressed on March 1 last, namely that “the moment to lower the discount rate is still far away”.

Asked whether markets are right to expect interest rates to fall in August, Huw Pill declined to comment. However, he considered it appropriate to maintain a restrictive position in terms of key rates.

The BoE’s chief economist is considered a centrist within the central bank’s Monetary Policy Committee (MPC).

The British private sector this month posted the fastest growth in activity in almost a year with a “flash” composite PMI index at 54.0, compared to 52.8 in March, according to the results of the S&P Global/CIPS survey published Tuesday.

“Economic growth in the UK has resumed, albeit at a modest pace, in recent months, following the technical recession we experienced in the second half of last year. And data from today’s survey “Today (…) certainly support this point of view”, commented Huw Pill.

Although inflation is expected to fall below the BoE’s 2% target in the coming months, Huw Pill warned against getting “too excited” about it, noting that a reacceleration in prices will not is not excluded at the end of the year.

Huw Pill estimates that services inflation and wage growth will need to be reduced to 3-4%, from around 6% currently, to achieve the headline inflation target of 2%.

The BoE’s chief economist also notes that the British central bank could modify its monetary policy independently of that of the American Federal Reserve (Fed) and that of the European Central Bank (ECB), the latter being likely to reduce its rates from June.

(Reporting David Milliken; written by Andy Bruce; Claude Chendjou, edited by Blandine Hénault)

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