The Bank of England (BoE) is likely to raise interest rates further in 2027, according to Chief Economist Huw Pill. In an interview with the Financial Times, Pill stated that the BoE will probably need to increase rates beyond the upcoming December hike to combat inflation. The central bank recently raised rates to 4% from 3.75% in its November meeting, the first increase since August 2023. Pill described this hike as a “significant step” but emphasized that “we have further to go.”
Pill highlighted the risks of second-round effects from elevated energy costs, driven by the Iran war, which could push British inflation to around 5% in mid-2027. This figure is more than double the BoE’s 2% target. He considered an end to the US-Israeli conflict with Iran and a fall in energy prices to be a “very low probability,” signaling his support for another quarter-point increase next month. Pill also admitted that the central bank should have acted sooner to combat inflation, stating, “In my view, we waited too long.”
Markets currently expect 90 basis points of tightening by the end of 2027, which could push rates close to 5%. Pill described these expectations as “not outrageous.” He noted that delays in hiking borrowing costs have reduced the ability to be modest in the scale of rate rises. Additionally, Pill signaled that he would not seek a third term as the bank’s chief economist when his current term ends in September 2027.