9 November 2026: Pill Says Interest Rates Could Be Cut If Growth Stalls

The Bank of England’s latest tightening cycle may not be over, but investors increasingly believe the Base Rate is approaching its practical ceiling. After a ‘risk management’ rate increase to bring inflation back under control, borrowing costs have reached a level that will start to meaningfully weigh on household spending, business investment, and the housing market. As a result, policymakers face a more delicate balancing act between curbing inflation and avoiding unnecessary damage to economic growth.

Financial markets are therefore paying close attention not only to future rate decisions but also to signals about how long rates will remain elevated. While persistent inflation pressures could still justify further tightening, the scope for additional increases appears narrower than earlier in the cycle. That has fuelled speculation that the interest-rate peak is drawing near.

For sterling, expectations that rates are nearing their limit may reduce support from yield differentials, placing greater emphasis on economic data and global risk sentiment in driving currency movements.

Bank of England Chief Economist Huw Pill delivered a balanced message on the outlook for UK interest rates, signalling that last week's Bank Rate increase to 4% should not be seen as the start of an extended tightening cycle. Pill said there is no predetermined path for rates next year and suggested that borrowing costs could remain unchanged or even fall if economic growth weakens and inflation pressures ease.

His comments matter because Pill is generally regarded as one of the MPC's more hawkish members. While the Bank raised rates in response to an energy-driven inflation shock and stronger-than-expected economic activity, he emphasised that the move was largely pre-emptive rather than a reaction to widespread second-round inflation effects.

For markets, the remarks reinforce that the BoE remains data-dependent. Further tightening is possible if inflation proves persistent, but a slowdown in growth, employment, and domestic demand could shift the debate towards rate cuts in 2027.

Meanwhile, the Governor of the Bank of England stressed that he remained politically neutral on Brexit, before noting that less friction with nearby trade partners would inevitably help the economy.

He said: “For over a decade now I’ve been clear that, as a public official, I do not take a position on Brexit.

“Having said that, the broader question is: would the UK being able to trade more openly with its nearest neighbours, to have that trade, to have that market openness, be beneficial for growth in the UK? My view is yes, it would.”

It comes as the Prime Minister prepares for an upcoming summit with the European Union to seek stronger relations. Last month, he told MPs that doing nothing would be a “major dereliction of duty” and that a conversation about the relationship was vital if Britain was “serious about promoting growth”.

However, Bailey told the BBC that Brexit has not impacted the City in the way that some had predicted, adding: “Let’s go back 10 years from now to the post-referendum period.

“People were predicting doom and gloom and the end of the City of London, and that hasn’t happened. Financial services has remained one of the more open markets, and I’m very pleased with that.

“We at the Bank of England have been very strongly supportive of that because we believe in open financial markets and we will go on believing in open financial markets and working closely with our partners in other parts of Europe.”

In a separate BBC interview, he acknowledged that inflation has been above the Bank’s 2% target during his tenure, adding: “Sadly, I do agree on the factual point that we have had inflation above target. What I have to say is that we’ve had several very big global or geopolitical shocks going on.

“I always say to people that if you go back seven, eight years and then ask the question: what probability would you put on there being a war in the Middle East and in Europe at the same time? I think people would have said very, very low.”

He suggested that global factors proved Britain was not an outlier in rising inflation. “I don’t agree with this idea that we’ve got endemic inflation,” he said. “I think we have got problems we have to deal with. Those problems are, you know, in the context of the current one, it’s a very particular source.

“It’s very concentrated in energy prices, and we have to deal with it. But it’s not endemic in that sense.”

Sterling enjoyed a generally constructive week in global foreign exchange markets, supported by growing expectations that the Bank of England would deliver its first interest rate increase since 2023. At the start of the week, the pound was broadly steady, trading around 1.34 against the dollar as investors focused on the Bank’s policy meeting and prospects for further tightening in early 2027.

As the week progressed, expectations of a Bank Rate increase to 4% were met, underpinning demand for the currency. Sterling also remained firm against the euro, with GBP/EUR near 18-month highs and briefly reaching its strongest level since May 2025.

The pound benefited from a softer dollar environment as risk sentiment improved and demand for traditional safe-haven currencies eased. By the end of the week, sterling had emerged as one of the better-performing major currencies, supported by continued relatively high UK interest-rate expectations and confidence that the Bank of England could tighten policy further if inflation pressures persist. However, Huw Pill’s comments will have driven traders towards a more considered approach.

The economy delivered a major upside surprise in October, with non-farm payrolls rising by 165,000 jobs, far exceeding economists’ expectations of around 65,000. The unemployment rate also edged down to 4.1% from 4.2%, highlighting the resilience of the world's largest economy despite higher borrowing costs and concerns over slowing growth.

The report's strength was reinforced by upward revisions to previous months, with August and September payrolls revised higher by a combined 84,000 jobs. Employment gains were broad-based, led by professional and business services, healthcare, and transportation/warehousing. Wage growth also remained firm, with average hourly earnings rising 0.4% on the month and 3.1% annually.

For financial markets, the data reduced fears that the U.S. economy is heading for a significant slowdown. However, the stronger-than-expected jobs figures also strengthened expectations that the Federal Reserve may need to raise interest rates again in December. Treasury yields rose and the dollar gained after the release as investors reassessed the monetary-policy outlook.

This is exactly the type of data and report that, in the recent past, would have had market practitioners waiting for comment from the Fed Chair. However, in the new FOMC, governed by Kevin Warsh, traders and economists will have to ‘make up their own minds’ about just how hawkish sentiment at the Fed has become, since such comments will no longer be forthcoming.

One factor in the Democrats' sweeping midterm success is that it will likely complicate President Trump’s ability to exert greater influence over the Federal Reserve for the rest of his term. While the White House retains significant authority over nominations to the Fed’s Board of Governors and future leadership appointments, a strengthened Democratic presence in Congress could make confirmations more politically challenging.

The result matters because the Federal Reserve remains one of the few major economic institutions that operates with a substantial degree of independence from elected politicians. Trump has frequently expressed strong views on monetary policy, arguing that interest rates have often remained too high for too long. However, the election outcome may make it harder to appoint candidates perceived as overly aligned with the administration’s policy preferences.

For financial markets, the midterms could therefore reinforce confidence in the Fed’s institutional independence. Investors generally favour a Central Bank free to focus on inflation and employment objectives rather than short-term political considerations.

That does not mean clashes between the White House and the Fed will disappear. If interest rates remain elevated far into 2027, pressure from the administration could intensify. Nevertheless, the Democratic surge appears likely to strengthen the checks and balances that help insulate U.S. monetary policy from direct political control.

The Federal Reserve’s eight policy meetings a year set the rhythm that global markets trade to, and Bloomberg reports that Chairman Kevin Warsh wants to change the tempo: beginning next year, the FOMC will start a transition under which two of its eight annual sessions would be devoted to broad strategy discussion instead of voting on interest rates, with the shift complete by the end of the year or early in 2028.

The change would leave six of the eight scheduled Federal Open Market Committee sessions as formal rate votes. For a committee that has leaned on quick, evenly spaced decisions to steer the economy over the past few years, that is a slower operating rhythm, one Bloomberg describes as a return to the Central Bank’s older ways of working rather than a novel invention.

Markets build their calendars around FOMC dates. Rate futures position ahead of each meeting; post-decision commentary feeds straight into repricing across stocks, bonds and the dollar. Cut two voting sessions out of the year, and the average gap between formal rate decisions widens to roughly eight or nine weeks, with strategy-only meetings in between that produce no policy action to trade on.

That changes positioning in two ways. First, each remaining vote carries more weight: a committee that votes on rates six times a year instead of eight has fewer chances to correct course, so a surprise at one decision leaves markets waiting longer for a response. Second, the strategy sessions become their own events. Minutes or chair remarks from a meeting explicitly framed as big-picture, rather than a rate call, could move markets on framework questions, such as how the Fed thinks about its inflation target or its balance sheet, that usually surface only in formal reviews.

However, experienced market sources say that the Fed will maintain the ability to move rates intra-meeting, should the situation arise, which may lead to a renaming of such action, away from its past sobriquet of ‘emergency’ action.

The U.S. dollar traded with volatility across global foreign exchange markets last week. Early in the week, the greenback came under pressure as improving risk sentiment and falling oil prices reduced demand for traditional safe-haven assets. Investors also focused on the U.S. midterm elections and the upcoming October employment report, keeping the dollar on the defensive against several major currencies.

However, sentiment shifted sharply on Friday following the release of much stronger-than-expected U.S. labour market data. The figures prompted markets to raise expectations of a Federal Reserve rate hike in December.

As a result, Treasury yields moved higher, and the dollar rallied broadly. Despite its early weakness, the dollar ultimately finished on a firmer footing as investors reassessed the outlook for U.S. monetary policy and embraced a "higher-for-longer" interest rate narrative.

The battle to become the next President of the European Central Bank has rapidly entered its final phase, with Klaas Knot and Pablo Hernández de Cos confirmed as the only remaining candidates. The choice now facing Eurozone leaders is less about personalities and more about the type of leadership the ECB needs as it confronts stubborn inflation pressures, weak economic growth and elevated energy costs.

Klaas Knot has built a reputation as one of the ECB's most outspoken inflation hawks. Supporters argue that his commitment to price stability would reinforce the Central Bank's anti-inflation credentials and provide continuity after a period when policymakers have had to keep interest rates high to contain price pressures.

Pablo Hernández de Cos, meanwhile, is regarded as a skilled consensus-builder with extensive experience in navigating complex policy challenges. Backers see him as capable of maintaining unity within a much-changed Governing Council while balancing the competing demands of growth and inflation.

With only two candidates left in the race, attention is increasingly turning to political alliances among Eurozone governments. The outcome will help determine not only the future direction of ECB policy but also how aggressively the institution responds to the economic challenges facing the single-currency bloc in the years ahead.

Last week, the Bank’s Chief Economist, Philip Lane, could have ‘thrown his hat in the ring’ with support from the Bank of Ireland Governor, but the challenge did not materialise.

The ECB’s Governing Council will be weaker with Lane’s departure next year, as he, like De Cos, is a voice of reason and conciliation on the six-person committee.

Speaking on Friday, Lane said the Bank expects further tightening of fiscal policy next year and beyond, adding that fiscal conditions have also become "tighter."

Speaking at the annual ECB Conference on Money Markets in Germany alongside United States Federal Reserve Bank of New York President John Williams, Lane stressed the need to bring inflation down to the 2% target "within a year or two."

Moreover, the Chief Economist warned that energy-driven inflation will bleed into wage negotiations and push up prices across the Eurozone economy.

The Euro had a mixed week in global foreign exchange markets, initially benefiting from broad-based dollar weakness before giving up some gains after a stronger-than-expected U.S. employment report. At the start of the week, the single currency found support as improving risk appetite and a pullback in oil prices reduced demand for the safe-haven dollar. The euro strengthened modestly against the greenback, with EUR/USD trading above 1.12.

However, the market narrative shifted sharply on Friday after the United States reported a much stronger labour market than anticipated. The data prompted investors to raise expectations of further Federal Reserve tightening, boosting Treasury yields and supporting the dollar.

As a result, the euro came under pressure late in the week, reversing part of its earlier advance against the greenback. Nevertheless, expectations that the European Central Bank may need to maintain a relatively hawkish stance helped limit losses, allowing the single currency to remain broadly resilient despite renewed dollar strength.

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