By Paul Hannon

The Bank of England's key interest rate is too low, but inflation can be "squeezed" out of the economy without a rise in borrowing costs, Chief Economist Huw Pill said Friday.

The central bank last week left its key rate unchanged, although it signaled that a further reduction is likely, and many investors see that happening at the March or April meetings.

However, Pill said that at 3.75%, borrowing costs are "a little bit too low," although he doesn't favor a move higher.

"You can always choose to hold them there, and as long as they are restrictive, there is a sort of substitutability for hiking the rate back," he said. "I think holding at this level and being more cautious will be enough."

Pill's comments suggest he won't vote for a rate cut at coming meetings of the Monetary Policy Committee.

He has favored a higher key rate than many of his colleagues over recent meetings of the MPC. He was one of the five members to vote for a hold, while four favored another cut.

The BOE last week forecast that inflation would be close to its 2% target from April. However, Pill said that much of that decline in inflation is due to government measures to lower energy prices, rather than being driven by economic developments.

"Progress with disinflation is ongoing, but it's not quite as rapid as we might have hoped," Pill said.

The BOE also lowered its growth forecast for this year, and raised its projection for unemployment. A report from its regional agents described the outlook for the economy as "lackluster."

Pill said that the key interest rate continues to restrain economic activity in order to cool inflation, although it's unclear to what extent.

"We do still have some restriction in monetary policy stance," he said. "That level of restriction is more ambiguous now."

However, Pill said that the economy is not sliding into a recession, even if growth is set to remain modest.

"We're not seeing some sort of collapse in activity, and that doesn't seem imminent," he said in a presentation to bankers and businesspeople.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

February 13, 2026 08:14 ET (13:14 GMT)

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