Bank of England likely to raise rates further in 2027, Huw Pill says - FT

The Bank of England may need to lift interest rates additional times in 2027, with chief economist Huw Pill telling the Financial Times. Persistent inflation, driven by the Iran war's impact on energy prices, threatens to keep Britain's economy off track, according to Pill. The central bank, which recently raised rates by 25 basis points to 4% in December, expects inflation to climb to 5% by mid-2027, more than double its desired 2% mark.

Pill expressed worry over second-round inflation effects, where initial jumps in energy costs lead to higher wages and sustained price hikes across the economy. He assessed the probability of a quick end to the conflict and a drop in energy prices as very low, which supports his view that another quarter-point rate hike in December is likely. Markets are betting on about 90 basis points of further tightening by year-end, possibly pushing the benchmark rate near 5%.

While Pill acknowledged the BoE should have acted sooner on mounting inflation pressures, he warned that protracted delays have constrained the central bank's ability to make smaller tweaks, potentially necessitating a more drastic response to restore price stability. His comments reinforce the belief that British monetary policy could stay tight throughout 2027 as policymakers grapple with persistent inflation and uncertainties in global energy supplies.