Bank of England chief economist Huw Pill has warned that the central bank will likely raise interest rates again next month and again in early 2027 as it battles rising inflation. Pill told the Financial Times that the recent move from 3.75% to 4% was a “significant step” but that the economy still needs further tightening.
He highlighted that the decision will affect an estimated 2.3 million homeowners who will need to refinance their mortgages next year, potentially pushing up monthly payments. Pill added that the Bank will “do what is necessary to get inflation back to 2% through time.”
Recent economic data showed the UK grew 0.7% in the third quarter, an annualised rate that only the United States surpassed among G7 nations. Pill noted that the economy has strengthened over the past year, giving workers more leverage to negotiate higher wages.
Inflation is expected to climb to 5% in the spring of next year, driven largely by high oil and gas prices linked to the Iran conflict. Pill said the likelihood of a resolution to the Iran‑Israel conflict and a drop in energy prices is very low, reinforcing the need for further rate increases.
He expressed concern that inflationary pressures could be magnified by second‑round effects and that the Bank may have waited too long to act. Pill also acknowledged that while the Bank has not yet seen clear evidence of wage hikes or companies passing costs onto consumers, the absence of such evidence does not mean it will not appear.
Financial markets are pricing in UK rates rising to almost 5% by 2027. Pill described these expectations as “not outrageous” and hinted that he could support more substantial rate hikes at upcoming monetary policy committee meetings.
Source: The Guardian World
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