NIESR argues the November rate rise does not go far enough, as fixed mortgage rates hit a three-year high
The National Institute of Economic and Social Research (NIESR) has called on the Bank of England (BoE) to raise its base rate to 5%, warning that the decision to lift rates to 4% on 5 November does not go far enough to bring inflation under control.
In its Autumn Economic Outlook, NIESR said inflation will not return to the Bank's 2% target until late 2030 on current policy. Financial markets are already pricing in a path toward 4.75% by the end of 2027.
Why the Bank is under pressure to go further
The trigger is a persistent energy shock. Oil prices have remained above $100 a barrel since July, up from around $70 in early 2026, and UK gas prices have more than tripled since February — a consequence of renewed conflict in the Middle East. NIESR estimates the cumulative impact is around two-fifths the size of the 2022 energy crisis at its peak.
The Consumer Price Index stood at 3.5% in September, well above the Bank's 2% target. With the energy price cap expected to rise by a further 16% or more in January 2027, NIESR now forecasts inflation will peak at 4.4% in February 2027 before averaging 3.9% across 2027 and 3% in 2028 — not returning to target until late 2030, around two years later than both the Office for Budget Responsibility (OBR) and the BoE are projecting.
NIESR's concern is that the Bank has been too slow to respond. Because inflation forecasts for 2027 rose by 1.8 percentage points while the base rate barely moved, the real policy rate has fallen by around 150 basis points in the face of an inflationary shock — meaning monetary policy has effectively loosened when it should have tightened.
That risk is compounded by the labour market. Inflation will peak in early 2027 just as around three-quarters of the year's pay awards are being settled. Households expect inflation of 4.2% over the next 12 months; businesses expect to raise prices by around 4%; and around 90% of private-sector employees work in sectors where median pay growth already exceeds the current rate of inflation. Unemployment has fallen to 4.7% — below NIESR's own 5% estimate of the natural rate — giving workers continued bargaining power at exactly the moment when high inflation expectations make them most likely to use it.
Budget adds to the pressure
NIESR also flagged concerns about the October Budget. Fiscal headroom fell to £14.5 billion, from £23.6 billion in March, with borrowing higher than the March plan in every year by a cumulative £57 billion to 2029-30.
The think tank described the deficit reduction plan — which requires a £100 billion turnaround in the primary balance over five years — as lacking credibility, warning that high government borrowing is contributing to elevated gilt yields and compounding the challenge facing the MPC.
Impact on mortgage rates
Gilt markets moved ahead of the November rate decision. The ten-year gilt yield reached 5.5% in October — its highest level since 2000. Because fixed-rate mortgages are priced against swap rates, which track gilt yields rather than the base rate directly, lenders had already begun repricing before the MPC voted.
The Moneyfacts average new mortgage rate reached 5.89% in November, up from 5.83% in October. Five-year fixed rates hit 6%, compared with 5% a year earlier. The two-year tracker rate averaged 4.68% at the start of November — more than a full percentage point below the equivalent fixed rate — but further base rate rises would narrow that gap. UK Finance estimated around 1.8 million fixed-rate mortgages were due to expire this year, leaving a large volume of borrowers exposed to current pricing.
What comes next?
For mortgage professionals, the near-term outlook is a further round of lenders repricing if the MPC moves in February and markets price in additional hikes thereafter. The energy price cap rise in January 2027 will also feed directly into the February inflation reading, which the MPC will have in hand when it votes. A higher-than-expected print would increase pressure on the committee to move more aggressively.
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