The Bank of England will probably need to raise interest rates further in 2027, over and above an increase at its next meeting in December, Chief Economist Huw Pill told the Financial Times in an interview published on Saturday, Reuters reported.
The bank raised rates to 4 percent from 3.75 percent at its November meeting, its first increase since August 2023. Pill called that move a significant step towards getting monetary policy into a better place, but said the bank has further to go. He said he expects to see evidence that motivates further rises next year, given the risk of second-round effects from elevated energy costs, and that the bank will do what is necessary to get inflation back to 2 percent through time.
British inflation, driven by second-round effects on wages stemming from the Iran war, is likely to rise to around 5 percent in the middle of next year on the bank’s own projections, more than double its target. Pill put a very low probability on an end to the conflict and a fall in energy prices, which the Financial Times read as a signal that he is set to vote for another quarter-point increase next month.
Markets currently price about 90 basis points of tightening by the end of 2027, implying Bank Rate could get close to 5 percent during 2027. Pill also signalled that he will not seek a third term as chief economist when his current term ends in September 2027, according to the report.
The comments extend the tightening story beyond the December 17 meeting. Where the November increase could have been read as a one-off response to an energy shock, the bank’s chief economist is now describing a path, not a step, and tying it to wage behaviour rather than to energy prices alone. That is the channel gilt investors have to price: if second-round wage effects are the trigger, the data that matter into 2027 are pay settlements and services inflation, not the oil price.