The Bank of England’s chief economist has called for interest rates to rise, raising fresh concerns over mortgage costs.
Huw Pill said inflation risks from the Middle East energy crisis strengthened the case for tighter monetary policy.
He also questioned the Bank’s current “wait-and-see” approach.
Pill warned against keeping rates unchanged while policymakers wait for clearer evidence on UK inflation.
His comments come at a sensitive time for the property market.
Rising wholesale borrowing costs have already increased the prospect of lenders raising fixed mortgage rates.
Pill was one of only two members of the Bank’s nine-member Monetary Policy Committee (MPC) to back an increase in July.
The majority, including Bank governor Andrew Bailey, voted to keep Bank Rate at 3.75%.
Pill instead favoured increasing the rate to 4%.
He argued that a rise would send a “clear and unambiguous signal” about the MPC’s determination to tackle inflation.
Speaking at the Edinburgh Chamber of Commerce, Pill also warned that economic uncertainty could persist.
“There is ample reason to doubt that we will see a definitive resolution of the multiple and profound uncertainties we currently face any time soon,” he said.
Higher energy prices threaten to push inflation upwards. They could also change the outlook for UK interest rates.
That creates another potential headwind for estate agents and buyers.
Higher interest rate expectations can push up swap rates. Lenders use these rates when pricing many fixed-rate mortgages.
Any sustained increase could therefore lead to more expensive home loans.
Higher mortgage rates would put further pressure on affordability. First-time buyers and homeowners approaching the end of fixed deals could feel the greatest impact.
They could also weaken buyer confidence during the traditionally busier autumn housing market.
Pill said: “In my view, in this environment we cannot wait for uncertainties to resolve themselves before acting.
“It is now six months since the onset of conflict in the Middle East.
“How or when the conflict will be resolved and, more importantly, the magnitude of its implications for UK inflation, remain unclear: essentially as unclear as they were six months ago.
“Given all this, I am uncomfortable with a ‘wait-and-see’ framing of the MPC’s current decisions over bank rate.”
“Raising bank rate on this basis need not be the start of a prolonged and aggressive series of increases,” he added. “Indeed, implemented and communicated effectively, a prompt increase in bank rate may serve to head off some of the potential insidious ‘catch-up’ nominal dynamics that threaten to make temporary departures of inflation from target more persistent.”
Comments (1)
With gilt and US bond yields at multi-year highs, rate hikes are just a matter of time.
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