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The Bank of England's chief economist, Huw Pill, has issued a warning against slashing interest rates "too far or too fast".

In his speech to the Institute of Chartered Accountants in England and Wales (ICAEW), Mr Pill advocated for a "gradual" approach to rate cuts, highlighting concerns over the long-term trajectory of inflation. This comes after Governor Andrew Bailey hinted at potentially "more aggressive" rate reductions in an interview with The Guardian, where he mentioned that the Bank could be "more activist" in lowering borrowing costs if inflation is under control.

These remarks prompted several major banks to revise their forecasts for interest rate cuts sooner than expected, leading to the pound experiencing its steepest fall in over a year. Despite the current British interest rate standing at 5%, having been reduced from 5.25% in August, and the Monetary Policy Committee (MPC) opting to maintain this rate at their last meeting, market analysts are anticipating another cut in the upcoming month.

However, Pill's comments suggest a more cautious stance on the future direction of interest rates. "While further cuts in Bank Rate remain in prospect should the economic and inflation outlook evolve broadly as expected, it will be important to guard against the risk of cutting rates either too far or too fast. For me, the need for such caution points to a gradual withdrawal of monetary policy restriction."

Over the past two years, UK policymakers have utilised higher interest rates to help reduce inflation, which was recorded at 2.2% in August, according to the most recent data from the Office for National Statistics. Mr Pill informed the audience that this figure is anticipated to edge closer to 2.5% by .

"But this upward blip reflects temporary factors and base effects, with inflation expected to fall back next year," he added.