Mortgage rates could end up ticking back up in the future, brokers have said, as the Bank of England’s chief economist warned it has been cutting interest rates too quickly.

Huw Pill, a member of the Monetary Policy Committee (MPC) that sets rates, opposed the 0.25 percentage point reduction to 4.25 per cent earlier this month.

He wanted to hold at 4.5 per cent because he believes the Bank may be moving too fast in easing policy.

Speaking at a Barclays briefing on Tuesday morning, he said: “My starting point is that the pace of bank rate reduction should be ‘cautious’, running slower than the 25 basis point per quarter we have implemented since last August.”

The Bank’s key rate “plateaued at slightly too low a level” back in 2023 when it was battling soaring inflation, he said, adding that the MPC had started cutting the rate “slightly too early” last year.

It is widely expected by experts that the Bank will cut three more times in 2025, meaning the cheapest mortgage rates could reach 3.5 per cent by the end of the year. There are currently several two and five-year fixed rates available for below 4 per cent.

But brokers have told The i Paper they think markets are being over-optimistic in their current expectations of rate falls, meaning mortgage rates may not fall by as much as originally expected.

Nick Mendes of brokers John Charcol said Pill’s remarks are a timely reminder that the Bank is not necessarily aligned with market expectations for rapid interest rate cuts.

He said: “Investors had become increasingly confident that rates would fall steadily over the coming months, but Pill’s tone suggests that such optimism may be misplaced.

“If he is correct, interest rates may not fall as quickly as previously forecast, and there is even a possibility they could edge even higher if inflation proves more stubborn than anticipated.

“For mortgage rates, this could mean a change in direction. We have already seen lenders trimming rates in recent weeks on the basis that markets were pricing in four base rate cuts this year, but if that narrative begins to shift, we may see those forecasts quickly shift, resulting in a reduction pause or even reverse slightly.”

The movement in swap rates, which underpin fixed mortgage pricing, has already begun to reflect this uncertainty.

Market expectation has a clear impact on fixed-rate pricing. When the talk of tariffs hit, the expectation of rate cuts feeding through more quickly rose, and that saw fixed mortgage rates dipping.

The threat of trade tariffs seems to have eased, which has led to swap rates ticking up.
As a result, several mortgage lenders, including TSB and Halifax, have increased their rates this week.

However, other lenders, including Santander, are still making cuts to theirs.
David Hollingworth of L&C Mortgages said: “[The threat of tariffs easing] could put the brakes on further drops in fixed rates for now. As market outlooks change, so will the impact on lenders’ funding costs.

“The market is so competitive that there’s very little margin to play with, so mortgage rates do quickly feel any bumps in the outlook.

“What borrowers don’t know is what the outcome will be, so they should keep focused on what will suit them best.

“Securing a deal gives peace of mind without preventing them from reviewing their choice if rates do keep dropping before they complete.”

Pill has been a consistent voice of caution as the Bank embarks on a series of rate reductions.

He said that, while progress of inflation back down towards the 2 per cent target – from its current level of 2.6 per cent – was ongoing, “disinflationary momentum has shown signs of stuttering”.

In particular, the pace of declines in underlying pay growth has slowed, while core services inflation remains “obstinately robust”.

Meanwhile, he was seeing renewed strength in business survey indicators, while household inflation expectations have picked up.

This all comes against a background of nearly four years of above-target inflation, Pill added.

He continued: “In short, I remain concerned about upside risks to the achievement of the inflation target.”