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.

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)