Above: File image of Huw Pill. Image © Global Utmaning, Lasse Skog. Modified from original, reproduced under CC licensing, non-commercial.

The Bank of England will keep interest rates at elevated levels for a protracted period according to Chief Economist Huw Pill, in what amounts to fresh confirmation a return to lower interest rates in 2024 is unlikely.

Pound Sterling has been supported by a succession of interest rate hikes but the message from central banks on the longevity of elevated interest rates - and the potential for rate cuts - is arguably now of greater importance, given most central banks are approaching the sunset of their current hiking cycles.

"At present, the emphasis is still on ensuring that we are - in the words of the MPC's last statement - sufficiently restrictive for sufficiently long to ensure that we have that lasting return to target," Pill told the South African Reserve Bank's Biennial Conference in Cape Town.

"The key element is that we on the MPC need to see the job through and ensure a lasting and sustainable return of inflation to the 2% target," he added.

The Chief Economist reinforced the message that at least one more rate hike was still required as the Bank needs to "see the job through" on bringing high inflation back down to the BoE's 2% target, even if there was a risk of raising interest rates too high would lower economic growth.

The Bank has raised interest rates on 14 successive occasions in this cycle and said borrowing costs were likely to stay high for some time in order to prevent high inflation from turning into a long-term problem for Britain's economy.

The move has helped the British Pound outperform in 2023 say economists and currency strategists, citing the currency market's current preference for 'high yielding' currencies.

Pill's message of 'higher for longer' therefore aids this trade.

Pill acknowledged, however, that there was a risk that the Bank raised borrowing costs too high.

"Now that policy is in restrictive territory, there is the possibility of doing too much and inflicting unnecessary damage on employment and growth," he told the Cape Town conference.

But he also said there was no room for complacency and some indicators of underlying inflation pressures had developed less benignly recently than the headline rate of inflation which has fallen from 11.1% in October to 6.8% in July

The key question for policymakers was the degree to which companies and households try to defend their incomes against the impact of the surge of inflation, Pill said.