Huw Pill, the Bank of England's chief economist, has stated that further interest rate rises are probable in the coming months. He indicated that rates will likely need to increase next month and again in early 2027 to address rising inflation.
Pill described the recent increase of interest rates from 3.75% to 4% as a "significant step" but added, "we have further to go." He told the Financial Times that he expects to see evidence motivating further rises, with the central bank committed to bringing inflation back to 2%.
These potential rate increases could lead to a sharp rise in mortgage payments for an estimated 2.3 million homeowners who are expected to refinance their loans next year. Financial markets are forecasting UK interest rates to approach 5% in 2027, a prospect Pill described as "not outrageous."
Pill believes the UK economy has strengthened over the past year, potentially empowering workers to seek higher wages. With inflation projected to reach 5% next spring, partly due to high oil and gas prices from the Iran war, he anticipates demands for substantial pay rises, which could prolong high inflation.