Hope for mortgage borrowers as Bank of England chief economist ‘sceptical’ on forecasts of four rate hikes
Bank of England chief economist Huw Pill has cast doubt on financial markets’ expectation of four interest rate rises by the end of 2027, offering some reassurance to mortgage borrowers facing the prospect of higher costs. Pill, who has repeatedly voted to raise rates, said he was sceptical that four quarter-point increases would be appropriate, even though he believes the Bank may need to move rates to the right level.
The Bank Rate remains at 3.75 per cent as the Iran war pushes up oil and energy prices and raises concerns about inflation. The Bank expects inflation to exceed 4 per cent, while markets have priced in rises to 4.75 per cent by the end of next year; this pricing influences the mortgage rates lenders offer. Policymakers are watching to see whether the energy shock spreads to other prices and wages.
- Huw Pill doubts four rate rises are needed by the end of 2027.
- The Bank Rate remains at 3.75 per cent.
- Market forecasts affect the mortgage rates lenders set.
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The Bank of England sets Bank Rate, which affects borrowing costs across the UK. Lenders use it, alongside other factors, when setting mortgage rates, so changes can affect household repayments.
Huw Pill is the Bank’s chief economist and one of the policymakers who vote on interest rates. The Bank’s central task is to keep inflation—the rate at which prices rise—under control, while weighing how rate changes affect households and businesses.
Higher energy prices can push up inflation directly and may also feed into other prices and wages. How far that happens is one factor policymakers consider when deciding whether borrowing costs need to change.
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The case for
Pill’s scepticism may reassure borrowers because four rate rises are not inevitable, and market expectations can shift before the Bank has seen how the energy shock affects prices and wages. If inflation pressures do not spread, raising rates as much as markets anticipate could unnecessarily increase mortgage costs and weaken household spending.
The case against
The case for higher rates is that the energy shock could feed into broader prices and wages, keeping inflation above the Bank’s target. If policymakers wait too long to respond, inflation may become more persistent, potentially requiring sharper rises later; market pricing reflects that risk, even if four increases are not certain.