Interest rates may need to rise this year, says Bank of England economist
Bank of England chief economist Huw Pill has warned that interest rates may need to rise again to deal with inflationary pressures.
By BBC News
A senior Bank of England policymaker has warned that interest rates may need to rise again this year to keep inflation under control.
Huw Pill, the Bank’s chief economist, said rates would need to increase to deal with inflationary pressures in the UK economy.
Speaking on the BBC’s Walescast, he said the economy was still facing a difficult mix of weak growth and persistent price pressures.
His comments are significant because many households and businesses had been hoping the next move in borrowing costs would be down rather than up.
The Bank of England’s base rate is currently 3.75%, after the Monetary Policy Committee held rates at its most recent decision.
Pill was one of two members of the nine-member committee who voted to raise rates at the previous meeting.
The next interest rate decision is due on 30 July 2026.
Interest rates are one of the Bank’s main tools for controlling inflation.
Higher rates can reduce demand by making borrowing more expensive and saving more attractive. That can help slow price rises, but it also increases pressure on mortgage holders, borrowers and businesses that rely on finance.
Lower rates can support spending and investment, but they can also risk allowing inflation to remain too high if price pressures have not been brought under control.
The Bank’s inflation target is 2%.
Although inflation has fallen significantly from the peaks seen in recent years, policymakers remain concerned about whether underlying pressures are proving more persistent.
Those pressures can include wage growth, service-sector prices, energy costs, import costs and expectations about future inflation.
For households, the possibility of higher rates matters most for mortgages, loans, credit cards and savings.
People on tracker mortgages or variable-rate deals can be affected quickly by changes in the base rate.
Those on fixed-rate mortgages are protected until their deal ends, but may face higher repayments when they remortgage if rates remain elevated.
For savers, higher rates can mean better returns on cash savings, although inflation can still reduce the real value of money if prices rise faster than interest earned.
For businesses, higher borrowing costs can make investment, expansion and hiring decisions harder.
That is particularly relevant for smaller firms already dealing with higher wage bills, rent, energy costs and weaker consumer demand.
Pill’s warning does not mean a rate rise is guaranteed at the next meeting.
The Monetary Policy Committee will consider the latest data on inflation, wages, jobs, growth and financial conditions before making its decision.
However, his comments show that the debate inside the Bank is not only about when rates might fall.
For Cheshire households, the practical message is to plan cautiously.
Anyone with a mortgage deal ending soon should check options early, compare rates and understand what repayments could look like if borrowing costs stay higher for longer.
Borrowers should also review credit card balances, overdrafts and personal loans, as higher interest costs can make debt harder to manage.
At the same time, savers should check whether their cash is earning a competitive rate, especially if it has been sitting in an old account.
The next Bank of England decision on 30 July will be watched closely by homeowners, renters, businesses and investors.
For now, the message from one of the Bank’s most senior economists is clear: inflation risks have not disappeared, and interest rates may still have to rise before they fall.