By David Milliken
LONDON (Reuters) -Bank of England Chief Economist Huw Pill said on Wednesday that central bankers should adopt what he described as a "conservative" approach to setting interest rates, including responding firmly if price growth gets out of hand.
Pill - who voted against the BoE's most recent rate cut to 4% in August - said his speech at the University of Birmingham was not intended to be a comment on the current stance of monetary policy or the economic outlook.
But he said central
bankers should make clear their commitment to prioritising price stability above wider goals for growth and employment over which they could not exert much long-term influence.
"We should be cautious in assigning monetary policy responsibility for real economic outcomes because, over the longer term at least, all monetary policy can do is determine the nominal dynamics of the economy," he said.
The BoE estimates that British consumer price inflation reached 4% in September and forecasts that it will not return to its 2% target until mid 2027.
Pill also said there was now too much uncertainty in the economy - both from unpredictable geopolitical events and difficulties estimating underlying economic variables - to focus on especially sophisticated approaches to setting rates.
Noisy, frequently revised official economic data and potential shifts in labour market behaviour since the pandemic made it hard to calculate good estimates of how much spare capacity there was in the economy or the neutral level of unemployment, in a timely enough way for policymakers, he said.
"More weight should be given to robust 'eternal verities' in running monetary policy, at the expense of pursuing fragile optimising approaches specific to a given set of often ephemeral circumstances," he said.
"The credible commitment to an aggressive monetary policy response should inflation get out of hand induces behaviour that makes it much less likely that inflation will get out of hand," he added.
(Reporting by David Milliken Editing by William Schomberg)
