The Bank of England's chief economist has signalled that UK interest rates are likely to keep climbing for years, even as markets already expect the central bank's key rate to approach 5% by 2027.
In an interview with the Financial Times, Huw Pill said the Bank's recent decision to raise Bank Rate to 4% was only part of the job, arguing that policymakers probably “have further to go.” His comments point to a longer and more persistent fight against inflation than many households might have hoped for.
Why rates may keep rising
Pill's main worry is that higher energy costs could keep pushing up wages, creating what economists call “second-round effects.” That's when an initial price shock, like a spike in energy bills, feeds into pay negotiations, and those higher wages then keep inflation elevated even after the original shock fades.
The Bank of England itself expects inflation to head toward about 5% around the middle of next year, well above its 2% target. Pill said a lasting drop in energy prices looks unlikely, which means the pressure on prices could persist.
This backdrop helps explain why financial markets are pricing in roughly 90 basis points of additional tightening by the end of 2027. In plain terms, that means investors expect the Bank Rate to rise by about 0.9 percentage points from its current 4% level, taking it close to 5%. Pill described those market expectations as “not outrageous,” suggesting he sees them as reasonable.
What this means for your mortgage
For everyday investors and homeowners, the most immediate impact of Pill's comments may show up in mortgage quotes long before the Bank of England actually meets again.
Many fixed-rate mortgages are priced off wholesale rates, such as short-dated government bond yields and SONIA swaps. SONIA swaps are financial contracts that track where investors expect Bank Rate to be in the future. When those expectations shift, lenders can adjust the rates they offer on new fixed deals and on “refixing” existing ones, even if the Bank of England hasn't moved yet.
So if investors continue to believe that rates will stay higher for longer, the reset point for people rolling off fixed terms could remain uncomfortably high. Even if your current mortgage payment is locked in for another year or two, the rate you'll be offered when that deal ends could be significantly more expensive than what you're paying now.
This is a particular concern for the many UK households who took out fixed-rate deals when rates were much lower. As those deals expire, they face a jump in monthly payments. Pill's comments suggest that jump might not be a temporary blip, but part of a longer period of higher borrowing costs.
Broader context
The Bank of England is not alone in grappling with stubborn inflation. Central banks around the world have been raising rates to cool price growth, and many are finding that the last stretch of the fight is the hardest. In the euro area, for example, inflation has also proven sticky, while in the US the Federal Reserve has signalled it may keep rates higher for longer.
Pill's remarks also echo concerns raised by other policymakers about the risk of wage-price spirals. If workers demand higher pay to compensate for rising living costs, and businesses pass those costs on to consumers, inflation can become self-reinforcing. That's why the Bank of England is watching wage growth closely.
For investors, the key takeaway is that UK interest rates are likely to stay elevated for an extended period. That has implications for bond prices, which fall when rates rise, and for sectors that are sensitive to borrowing costs, such as housing and consumer spending. It also means that cash savings rates could remain attractive, but so could the cost of borrowing.
As always, it's important to remember that central bank policy is not set in stone. If inflation falls faster than expected, or if the economy weakens sharply, the Bank of England could pause or even reverse course. But for now, the message from one of its most senior officials is clear: the fight against inflation is not over, and rates may have further to climb.
