The latest
Bank of England Chief Economist Huw Pill, one of nine officials who set UK interest rates, said rates may need to rise again as inflation remains above target.
Asked on the BBC’s Walescast whether rates would need to increase over the coming year, Pill said: “The short answer is yes.” He said the economy had been running “a little bit hotter than the supply side,” keeping pressure on prices.
His warning comes ahead of the Bank’s next decision on July 30. Pill was one of two Monetary Policy Committee members who voted to raise rates from 3.75% at the last meeting, while the majority chose to hold.
Details
- Rate warning: Pill said higher interest rates may be needed over the coming year to keep inflation under control. His argument is that demand in the economy has been stronger than the UK’s supply capacity, making it harder for price pressure to return fully to target.
- MPC split: Pill was one of two members of the Bank’s nine-person Monetary Policy Committee who voted to raise rates from 3.75% at the last meeting. The July 30 decision will show whether his warning remains a minority view or gains support inside the central bank.
- Inflation concern: UK inflation stood at 2.8% in May, still above the Bank’s 2% target. Pill warned against becoming comfortable with inflation near 3%, saying the Bank’s mandate remains clear even after the sharper price rises seen in recent years.
- Energy pressure: Higher oil and gas prices linked to the US-Iran conflict have added another risk for inflation. That has complicated earlier expectations that rates could fall this year and has left policymakers watching whether energy costs feed further into household bills.
- Market impact: Markets had previously expected rate cuts in 2026, but those bets shifted as inflation risks increased. Some lenders have still reduced fixed mortgage rates after swap rates eased, although a stronger chance of another Bank of England hike could change that pricing.
- Household effect: The Bank Rate influences mortgage costs, other borrowing, savings returns and the wider effort to control inflation. That means any shift toward higher rates would be felt beyond financial markets, especially by borrowers already facing higher living costs.
What to watch
- The July 30 MPC meeting will show whether more officials move toward Pill’s position or continue to hold rates steady.
- Inflation and energy-price data will be central to the next decision, especially if oil and gas costs keep feeding into household bills.
- Mortgage borrowers will watch whether lenders continue cutting fixed rates or adjust pricing if markets expect higher Bank of England rates.
