Hope for mortgage borrowers as Bank of England chief economist 'sceptical' on forecasts of four rate hikes

The Bank of England’s leading interest rate 'hawk' has played down fears that there will be a succession of hikes over the coming year.

In a boost for mortgage borrowers fearing costs could spiral even higher, the Bank's chief economist Huw Pill said he was ‘sceptical’ of market expectations for four rate increases by the end of 2027.

Pill has previously broken with the majority of Bank of England’s Monetary Policy Committee (MPC) by voting for a rate hike at its last four meetings.

Rates have been left at 3.75 per cent – leaving the Bank as the only major central bank not to raise them this year in the face of mounting inflation pressures.

Pill is widely expected to get his way next month amid a steady drum beat of MPC members indicating that they are likely to vote for a rise.

Yet he has now cast doubt on financial market pricing which points to a further series of increases to take Bank rate to 4.75 per cent by the end of next year.

Speaking at an event organised by US bank Citi on the sidelines of the International Monetary Fund meetings in Bangkok, Pill said: ‘Is it obvious that we will need to move, follow market pricing to four 25 basis-point hikes and so forth?

‘So there, I would be a little more sceptical.’

Pill said the Bank does need to get into ‘the right position’, adding: ‘That is something that probably is increasingly obvious now. But is four hikes appropriate over the next year?’

Pressure for a rate hike is building as the Iran war continues to push prices higher, with oil at over $100 a barrel and annual UK energy bills set to soar past £2,000 from January.

The Bank expects that will drive inflation above 4 per cent yet has continued to hold off on rate increases – even as the US Federal Reserve and the European Central Bank go for hikes.

Until now the majority of the MPC have judged that inflation pressures have remained subdued enough not to raise rates.

They have taken a wait-and-see approach to whether the price shock caused by the war feeds through to wider price and wage setting in the economy.

However, the Bank’s governor Andrew Bailey this week acknowledged how the continued Middle East conflict could change the picture, saying ‘the longer this goes on, the harder it gets’.

Pill’s comments highlight the sharp discrepancy between market expectations about rate hikes and those of MPC members and other experts.

The difference has been attributed to the way markets mathematically price possible risk versus the way economists look for the most likely outcome.

Market pricing has a painful real world impact on borrowers as it determines the rates at which lenders set mortgages – which are based on the predicted path of interest rates rather than where they stand at present.