(Bloomberg) -- Bank of England Chief Economist Huw Pill said a summer interest-rate cut is on the table but cautioned there is “still some work to do” to curb domestic price pressures in the UK.

Pill said the BOE has “capped” underlying inflation measures and that it is “not unreasonable” to expect the Monetary Policy Committee to consider cuts over the summer. 

Speaking at a Institute of Chartered Accountants in England and Wales event, he warned that policy will need to remain in restrictive territory to keep price pressures contained, though added that it can still bear down on inflation even if rates are cut. 

His remarks suggest the BOE is cautiously moving toward a rate cut at upcoming meetings, in June and August, after more signs that the labor market is cooling emerged on Tuesday. Pill’s comments are being watched closely by investors as some economists see him as being more cautious than Governor Andrew Bailey and Deputy Governor Dave Ramsden.

The pound fell and gilts rallied after the remarks. Money markets lifted wagers on monetary policy easing, pricing in a 50% chance of a cut in June and fully pricing a quarter-point cut by August. While two reductions by year-end remained the case, the chances of a third rose to almost one-third from around 10% last week. Sterling fell 0.4% to $1.2512, lagging all other Group-of-10 currencies on Tuesday.

“It’s not unreasonable to believe that through the summer we will begin to see enough confidence in the decline in persistence that bank rate will come under consideration,” Pill said. “It’s important to recognize we can cut bank rate, while still leaving some restriction in the system.”

His comments come after data earlier Tuesday showed a broad-based easing of inflation pressures in the labor market, with the unemployment rate climbing to its highest since last summer and private-sector wage growth slowing. The number of unemployed people per vacancy — a measure keenly watched by the BOE — rose to equal the highest since 2021.

Pill pointed to “good news” on bringing down inflation, which the BOE expects to be around its 2% target in the second quarter. 

However, he cautioned there is “some way to go” in keeping price growth at target given the tightness of the labor market and rapid wage increases. 

Pill emphasized the importance of two rounds of inflation data and another jobs release before the next MPC meeting in June.

“I think the committee is certainly going to evaluate that data very carefully,” he said.

Markets are “taking note of the comments given that Pill has been leaning more towards the hawkish side in past weeks compared to the other internal members,” said Kirstine Kundby-Nielsen, a strategist at Danske Bank. “A summer cut seems to be the base case but question is whether it will be June or August. We stick to June.”

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