MNI BRIEF: UK Growth, Inflation Outlooks Rosier - BOE Pill

The UK may be facing a more benign economic outlook, with improvement in the growth prospects accompanied by a lower inflation outlook but that the onus remained on ensuring that there was enough monetary tightening in place to get inflation back sustainably to target, Bank of England Chief Economist Huw Pill said Tuesday. Pill said that the MPC is taking a more data-dependent approach and he left the door open to a further rate hike in May, while stressing the uncertainty and acknowledging that there are competing narratives over how things will unfold.

With gas prices having fallen and wage pressures easing the MPC needs to recognize that "improved prospects for activity is simultaneously weighing on both inflation (through the direct and indirect effects of energy price falls) and inflation persistence," Pill said.

At the same time the better-than-expected UK employment and activity outlook may represent a new, positive demand shock which will push up on inflation and "strengthen the case for further monetary tightening," and the key is which effect narrative carries more weight, he argued. Pill backed the 25 basis point hike in March but the MPC is divided heading into the May meeting.