Bank of England signals further rate rises as inflation stays above target
Britain’s stronger-than-expected growth and persistent price pressures are keeping the Bank of England on a tightening path after last week’s quarter-point increase to 4%. Inflation stands at 3.5%, above the central bank’s 2% target, and policymakers are weighing the risk that higher energy costs feed into wages and broader company pricing.
Highlights
- Bank of England chief economist Huw Pill signals further interest rate hikes likely in 2024, following the latest increase to 4%, to combat persistent inflation.
- Huw Pill notes divisions among policymakers and warns delays in previous rate increases reduce scope for gradual tightening, underpinning a more hawkish policy outlook.
- Solid UK economic growth persists amid the Iran conflict and elevated energy prices, but higher interest rates will continue pressuring business financing and household costs.
Policy outlook and rate path
As reported by Financial Times, Bank of England chief economist Huw Pill says further interest rate increases are likely to be needed in the coming year, describing the latest rise to 4% as a significant step but not the end of the tightening cycle.Pill says there is still further to go on borrowing costs as officials seek to prevent second-round effects from elevated energy prices. He expects evidence supporting additional rate rises to emerge next year and says the central bank will take the action needed to bring inflation back to its 2% target over time.
He has backed a move to 4% for more than six months, but also notes divisions among policymakers over the timing of future increases. Pill adds that delays in lifting borrowing costs have reduced the scope for a gradual series of modest rises.
Implications for the UK economy
The comments come as Britain reports solid economic growth this year despite disruption linked to the Iran conflict, a backdrop that has complicated the inflation outlook for households and businesses. More hawkish economists are concerned that higher energy costs could push up wage demands and raise other operating costs across companies.For businesses, the prospect of further rate rises points to continued pressure on financing costs even as demand holds up better than expected. For markets, Pill’s remarks reinforce the view that the Bank of England remains focused on inflation risks rather than signaling an early pause.
Pill also says he does not plan to seek a third term when his current stint ends in September 2027, indicating that he would prefer new ideas to enter the central bank’s leadership.
We recently wrote about the Bank of England rate outlook, as economists largely penciled in a possible February hike amid persistent inflation.
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