The Bank of England is unlikely to raise interest rates as many times as it did in 2022, though further increases could still come next year if energy costs feed through into wages and prices, the central bank's chief economist said. Huw Pill, a member of the rate-setting committee, made the remarks a day after the Bank raised its base rate to 4% from 3.75%, marking the first increase in more than three years.
Governor Andrew Bailey said the latest increase "shouldn't be seen as the first in an inevitable long sequence of hikes" but acknowledged it was unlikely to be the last unless the Middle East conflict was resolved. Pill expanded on this view, saying the scale of the current shock was smaller than in 2022, when the Bank made eight consecutive rate rises over the course of the year. He pointed out that gas prices have not spiked as much as they did after Russia's invasion of Ukraine.
Financial markets are expecting three further rate hikes, according to Pill. However, he emphasised that the key evidence for policymakers will emerge in spring 2027. "The future path of rates will become more uncertain" as the Bank watches for what it calls second-round effects, he said. These would include signs that inflation is feeding into company behaviour such as wage increases or price rises in shops.
The Bank's rate-setting committee said that so far, second-round effects from the Middle East energy shock have been somewhat limited. Pill noted there are risks to the market's three-hike outlook on either side, meaning the actual number of increases could be higher or lower depending on how economic indicators develop.
For UK borrowers and savers, further rate rises could continue into 2027 depending on whether energy costs push up wages and prices in the coming months.