Interest rates may need to rise this year, says Bank of England economist

Here is a story making headlines in the economy: Interest rates may need to rise this year, says Bank of England economistImage caption, Huw Pill went to Whitchurch High School in CardiffByFelicity Evans Wales money editorPublished38 minutes agoInterest rates may need to increase this year to keep rising prices under control, according to the Bank of England's chief economist. Huw Pill, who is from Cardiff, told the Walescast podcast that the "speed limit at which you can run the economy is a bit lower than it's been in the past". Pill is one of only nine people in the UK who decide what the Bank of England's interest rate should be - something which affects the cost of mortgages and the rates at which prices rise.

He went to Whitchurch High School in Cardiff, whose alumni include some of Wales' best known sporting heroes. Unlike them, he has had a chance to see the 400,000 bars of gold bullion stored at the Bank and has confirmed that they're "amazingly shiny. "Image caption, The Bank of England keeps billions of pounds worth of gold bullion in its vaultPill is a member of the Monetary Policy Committee (MPC) which decides whether to raise or lower the Bank of England interest rate.

Economic Details

This rate helps determine the cost of mortgages, other borrowing and the return savers get on their money. It also controls inflation which is the rate at which prices are rising. The Bank of England has an inflation target of 2%, but the rate currently stands at 2.

Pill believes interest rates will need to increase this year to keep inflation down. He was in a minority of MPC members who voted for an increase in interest rates in June. "I've been at the bank for 56 months, inflation's been at or below target for three months, it's been above target for 53 months," he said.

"So I think that's a reflection of the fact that, in part, we've had some bad luck, we've been subject to challenges, but perhaps we've been a little bit over optimistic about what the trend growth in the economy is. "What is happening to UK prices? Published17 JuneRaising productivity key to higher Welsh wages, says minister Published3 JuneInterest rates held as Bank warns of impact of high energy prices Published18 JuneHe said that productivity, which measures how efficiently people work, has slowed down in the UK.

Analyst Views

It is also a particular problem in Wales where it is the lowest of the four home nations and around 15 percent lower than the UK average, external. People in Wales also earn lower wages than the UK average, and the country has some of the highest rates of welfare claims. Pill said improving the efficiency of the Welsh economy is the key to raising living standards.

Things like better infrastructure "to link places together" and creating "a better educated workforce" are recognised drivers of productivity. But he acknowledged that it is "a very difficult thing to deliver" in an uncertain world, where "public finances are constrained" and politicians face "hard decisions".

Financial markets are tracking the development closely as investors assess the likely impact.