The Bank of England is expected to raise interest rates in December and potentially into early 2027, according to chief economist Huw Pill. This follows a recent increase from 3.75% to 4% earlier this month, which Pill described as a “significant step” but indicated “we have further to go”. The Bank’s monetary policy committee is scheduled to make its next rates decision on 17 December.
These signalled rate increases are expected to result in higher mortgage payments for approximately 2.3 million homeowners who will need to refinance their loans next year. Financial markets currently expect UK interest rates to reach almost 5% by 2027, a prospect Pill described as “not outrageous”.
Inflation is projected to rise to 5% in spring 2027, driven by elevated oil and gas prices resulting from the Iran conflict. Pill expressed concern that public and private sector workers demanding substantial pay rises in response could keep inflation elevated for an extended period.
Despite a hawkish stance from policymakers, concerns remain about the impact of further rate increases on sectors such as construction, which has contracted for much of the year. Commercial property refinancing has also become increasingly time-sensitive due to rising borrowing costs.