Bank of England May Raise Rates This Year to Fight Inflation, July 11

The Bank of England’s chief economist signalled on July 9 that interest rates may need to rise this year to combat inflation running above target. Huw Pill, one of nine people on the Monetary Policy Committee that sets UK rates, broke ranks with market expectations of cuts. Inflation stands at 2.8% against the central bank’s 2% target, and Pill voted for a rate increase in June when the committee voted 7-2 to hold rates at 3.75%.

Why the BoE may hike despite weak growth

Pill told the Walescast podcast that the UK economy’s “speed limit” is lower than before, meaning it cannot grow as fast without triggering inflation. He has spent 56 months at the Bank of England and noted inflation has been above target for 53 of those months. Productivity, which measures how efficiently people work, has slowed across the UK and is particularly weak in Wales, where it sits 15% below the UK average.

What this means for mortgages and savers

The base rate directly affects the cost of mortgages and the returns savers earn. A rate rise would increase borrowing costs for homeowners on variable-rate mortgages and new fixed-rate deals. Savers would earn higher interest on savings accounts. Earlier forecasts predicted rate cuts to 3% by year-end 2026, but Pill’s comments suggest that outcome is now uncertain.

Market and business confidence under pressure

Business confidence has fallen to an 18-month low, with only 26% of firms expecting activity to improve. Companies cite rising employment costs, weak consumer demand, and tax uncertainty. Pill acknowledged the Bank has “been a little bit over optimistic about what the trend growth in the economy is”, suggesting policymakers underestimated headwinds to growth.

Where the MPC stands on rates

The Monetary Policy Committee voted 7-2 on June 18 to hold rates at 3.75%. Pill was in the minority voting for a hike. MPC member Catherine Mann has also indicated support for a rate rise if inflation moves higher, signalling potential future votes for increases. The committee’s next decision will shape whether the UK follows a tightening or easing path in the second half of 2026.

Final Thoughts

Pill’s warning breaks the market consensus on rate cuts and signals the BoE may prioritise inflation control over growth support. For UK borrowers and savers, this shifts the outlook from falling costs to potential increases, making fixed-rate mortgage deals more attractive now.

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