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Thursday, Dec 25, 2025

Bank of England economist hints at 'significant' rate rise

Bank of England economist hints at 'significant' rate rise

The Bank of England has hinted it is prepared to ramp up interest rates in response to the recent slump in the value of the pound.

Its chief economist said the Bank will have to deliver a "significant monetary policy response" to protect sterling.

Huw Pill said that there had been "significant market consequences" after the chancellor announced a series of tax cuts.

It comes as several banks have pulled mortgage deals for new customers.

Speaking at the International Monetary Policy Forum on Tuesday, Mr Pill said that the Bank was "certainly not indifferent to the repricing of financial assets that we have seen".

A pledge of further tax cuts by Chancellor Kwasi Kwarteng and worries about higher interest rates knocked investors' confidence and saw the pound touch a record low against the dollar on Monday.

Some economists predicted that the Bank of England might call an emergency meeting as soon as this week to raise rates, to help stem the fall in sterling and keep a lid on the rising cost of living.

The rate increase seen this month was the seventh in a row and took rates to the highest for 14 years. A further rise would increase monthly mortgage costs for millions of homeowners.

Experts now forecast that interest rates could reach 5.5% or even higher by next spring, prompting lenders such as Santander and Virgin Money to pull mortgage deals because of the lack of certainty on how far they might go.

Mr Pill, who sits on the Monetary Policy Committee (MPC), which sets interest rates, said on Tuesday: "I do want to flag clearly at this point that in my view the combination of fiscal announcements that we've seen will act as a stimulus."

"It is hard not to draw the conclusion that this will require a significant monetary policy response."

He added that the Bank takes its responsibilities "very seriously", although did acknowledge that the next scheduled decision on interest rates seemed a while away for many homeowners and savers.

Speaking in a personal capacity, he added that there were "challenging times" ahead for the Bank as it tried to bring inflation, which tracks how the cost of living changes over time, back to its target of 2%.

Mr Pill also said that the recent announcement by the Treasury on a further fiscal event in November, alongside new economic forecasts from the OBR was "helpful".

The chancellor's plans will require a large increase in government borrowing and concerns among investors about the UK's ability to pay that debt led to the value of the pound falling and pushed the cost of UK government borrowing to near record levels.

Chancellor Kwasi Kwarteng said, though, that the government is "confident in our long-term strategy to drive economic growth through tax cuts" and "supply side reform " would work.

Mr Kwarteng is set to meet Wall Street bankers on Wednesday, Bloomberg reported, after meeting asset management firms and insurance brokers from the City of London on Tuesday, following market turmoil over his fiscal plans.

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