Bank of England economist warns of 'disturbances' that could hit interest rates

The Bank of England's chief economist, Huw Pill, has warned that global economic "disturbances" could influence the trajectory for interest rate cuts following Donald Trump's victory in the US presidential election.

He stated that if inflationary pressures continue to ease, policymakers would have more room to cut rates. However, he emphasised that this outlook hinges on there being "no big new disturbances to the economy", noting that there are "plenty of potential sources of big disturbances".

His comments came after the Bank announced a reduction in interest rates from 5% to 4.75%. Governor Andrew Bailey explained that this was possible due to inflation falling below the Bank’s 2% target, but advised that a "gradual approach" to cutting rates would be necessary in the future.

This is partly because the Bank needs time to evaluate the impact of tax increases revealed in last week’s . Mr Bailey also highlighted the need to monitor the "fragmentation of the economy", although he declined to speculate on what policies Mr Trump might introduce next year.

The president-elect had promised during his campaign to tax all goods imported into the US, describing "tariff" as "the most beautiful word in the dictionary". Economists have suggested that this could affect the UK by exerting pressure on goods prices.

Mr Pill, who is one of the nine members of the Monetary Policy Committee, said the Bank would need to keep an eye on financial market movements in response to global shocks. He also suggested that the Monetary Policy Committee (MPC) should overlook the temporary inflation spike resulting from the Budget, concentrating instead on the "underlying and more persistent components of inflation" such as price pressures in the services sector and wage growth.