BOE likely to raise rates further in 2027, Pill tells FT

Nov 14 (Reuters) – The Bank of England will probably need to raise interest rates further in 2027, over and above an increase at the next meeting in December, to combat inflation, Bank of ​England Chief Economist Huw Pill told the Financial Times ‌in an interview published on Saturday.

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Britain’s central bank raised interest rates to 4% from 3.75% in its November meeting, the first rise since August 2023. Pill told the FT that hike was a “significant step” towards getting monetary policy into a better place, ‌but ​that “we have further to go.”

“My view would be ⁠we will see evidence ⁠that motivates further rises” Pill told the newspaper, referring to the need for rate hikes next year, given the risks of second-round effects from elevated energy costs. “We will do what is necessary to get ​inflation back to 2% through time.”

British inflation, driven by second-round effects on wages caused by the Iran war, is likely to rise to ⁠around 5% in the middle of next ⁠year, according to the BoE, which is more than double ​the central bank’s target.

Pill considered an end to the US-Israeli conflict with ​Iran and a fall in energy prices to be a “very ‌low probability,” signalling that he is set to vote for another quarter-point increase next month, the FT said.

“My bias, for what it’s worth, is that I worry about the inflationary impact being magnified by second-round effects,” ⁠he told the newspaper, adding that he believed that the central bank should have acted sooner to combat inflation. “In my view, we waited too long.”

Markets currently ⁠price in 90 basis ‌points of tightening by end 2027, implying rates could ⁠get close to 5% in 2027. Pill said ​these expectations were “not ‌outrageous.”

Because of the delays in hiking borrowing costs, “the ​ability to ⁠be modest [in the scale of rate rises] has diminished,” he told the FT.

Pill signalled that he would not seek a third term as the bank’s chief economist when his current term ends in September 2027, according to the report.

(Reporting by Rhea Rose Abraham in Bengaluru; Editing by William Mallard ​and Stephen Coates)