LONDON, Feb 13 (Reuters) - Bank of England Chief Economist Huw Pill said underlying inflation in Britain was settling at about 2.5% a year, higher than the BoE's 2% target and reiterated his view that interest rates needed to be allowed to keep bearing down on inflation.
"I think when we look at where we are now, short of something happening, underlying inflation is going to be two and a half percent, once we take that half percentage-point impact from the budget out of the forecast we have for April/May,"
Pill said at an event hosted by Santander, a bank, in London.
The BoE has said it expects inflation to fall to about 2% in April or May, but much of that fall is likely to be due to one-off measures included in finance minister Rachel Reeves' budget announced in November.
Last week Pill voted with a narrow majority of the BoE's Monetary Policy Committee to keep interest rates on hold at 3.75% and in December he opposed the decision to cut rates by a quarter of a percentage point.
In minutes of February's decision, Pill said interest rates had been cut too fast previously and that inflationary pressures stemming from that "still need to be contained and eliminated".
In his comments on Friday, he repeated his view that the cooling of inflation pressures in Britain remained incomplete and likened the outlook for businesses' wage and price-setting plans to a "shallow saucer".
"In order to complete that (disinflation) process, monetary policy has a part of play and that means we do need to retain some restrictiveness in the stance of monetary policy until that process of disinflation is complete," Pill said.
Four of the MPC's nine members last week voted for a rate cut due in large part to concerns about a slowdown in the labour market.
Pill said he did not expect "a collapse" in economic activity and that much of the recent rise in unemployment could be due to structural factors.
(Reporting by David MillikenEditing by William Schomberg)
