News · November 12, 2026, 06:31 UTC
The National Institute of Economic and Social Research (NIESR) called on the Bank of England to lift its key interest rate to around 5% to bring inflation under control, according to a report published on November 11, 2026 and covered by Yahoo Finance and City AM.
The Westminster-based think tank argued that both monetary and fiscal policy decisions were being deferred, which it said risks worsening UK inflation and squeezing the public finances.
The intervention came after the Bank’s Monetary Policy Committee raised interest rates to 4% the previous week, the first increase in more than three years, as reported by the outlets.
NIESR said it expected one more hike from the central bank but judged that this would be insufficient, projecting that inflation would not return to the 2% target until late 2030.
What happened
In its autumn report, NIESR forecast that Consumer Prices Index inflation would peak at around 4.4% in February, up from the 3.8% peak it had predicted in July, according to Yahoo Finance.
The think tank warned that rates needed to reach as high as 5% to counter the risk of second-round inflation effects, which it said would appear early next year when companies set wages and prices.
City AM reported that NIESR highlighted the roughly three-quarters of UK workers due to agree pay settlements with employers in the first three months of next year, just as inflation was expected to peak above 4%.
The think tank said inflationary pressures could become embedded through price-growth expectations and insufficient slack in the economy.
The Bank’s own forecast update last week projected inflation peaking at 4.9% by July next year before dropping to 2% in 2028, City AM reported.
Governor Andrew Bailey said he could “see the argument” for another hike to 4.25% if energy prices stayed higher and a larger inflation spike emerged in the coming months.
The Bank’s projections assumed President Trump ended the Iran war, Gulf trading flows resumed in the near term and Brent crude fell from $108 per barrel to about $75 by 2028; oil was around $90 per barrel on Tuesday after Trump suggested the war was “effectively over,” according to the outlet.
NIESR also criticized fiscal policy, saying major spending drives, including on defense, social care and disability, remained unfunded.
In last month’s autumn Budget, Chancellor John Healey confirmed fiscal headroom would fall to £14.5 billion from £23.6 billion, linked to higher debt interest costs over the past year, Yahoo Finance reported.
NIESR estimated that if spending plans slipped as much as previous ones had, the government’s fiscal rules would be missed by around £30 billion.
On growth, NIESR forecast UK GDP at 1.6% this year, above its previous 1.4% prediction, driven by government spending and business investment including AI, but expected growth to slow to 1.1% next year, down from a prior 1.3% projection, according to Yahoo Finance.
Analysis: Why it matters for investors
NIESR’s call points to a more restrictive rate path than the Bank has so far signaled, which could matter for holders of UK rate-sensitive assets.
City AM reported that NIESR estimated a scenario with rates at 4.75% would shave about 0.4 percentage points off GDP growth in 2028 and 2029, leaving the economy expanding just 0.5% in 2028. If investors accept that framing, expectations for longer tight policy could weigh on domestically focused equities and support sterling, though the sources do not provide market pricing.
Higher rates would also complicate the Chancellor’s fiscal arithmetic, the think tank acknowledged, because they raise debt interest payments. That link means fiscal credibility and monetary policy are increasingly intertwined, a combination that can move gilt yields.
Any such implications remain conditional on the Bank’s actual decisions and on how energy prices and wage settlements develop.
Who is affected
Households on variable-rate mortgages and other floating-rate debt face the most direct exposure if rates rise toward 5%. NIESR said poorer households would be hit hardest, because they have no choice but to buy less rather than adjust spending or draw on savings.
Workers negotiating pay in the first quarter of next year are central to the outlook, given the volume of settlements due then.
The government is affected through debt interest costs and its fiscal headroom, which the Chancellor put at £14.5 billion in the autumn Budget. Businesses setting prices and wages early next year are also in focus, as are holders of UK government bonds.
What is still uncertain
Whether the Bank actually raises rates to 5% has not been disclosed; NIESR’s recommendation is not a decision. The Bank’s own projections assumed an end to the Iran war and falling oil prices, and the path of energy costs remains unclear.
The precise timing and scale of any further hikes, and the final outcome of pay settlements, are also unknown.
Conclusion: What to watch next
The Bank of England’s next rate decision and any shift in Governor Andrew Bailey’s guidance will be the key test of whether NIESR’s call gains traction.
Investors should also watch the February inflation reading, the first-quarter wage settlements and oil prices, alongside any signal from the Chancellor on funding pressures. brokertable.net has not reviewed the original NIESR report; details are based on reporting by Yahoo Finance and City AM.
Frequently Asked Questions
What did NIESR recommend for UK interest rates?
NIESR said the Bank of England should raise its key rate to around 5% to control inflation. It argued that one more hike beyond the current 4% would not be enough.
When did the Bank of England last raise rates?
The Bank raised interest rates to 4% in the week before November 11, 2026, the first increase in more than three years, according to the reports.
What inflation peak does NIESR forecast?
NIESR forecast CPI inflation peaking at around 4.4% in February, up from its earlier 3.8% projection. The Bank's own forecast sees a 4.9% peak by July next year.
How would higher rates affect growth, according to NIESR?
NIESR estimated that rates at 4.75% would cut about 0.4 percentage points from GDP growth in 2028 and 2029. That would leave the economy growing just 0.5% in 2028.
What did the autumn Budget show on fiscal headroom?
Chancellor John Healey confirmed fiscal headroom would fall to £14.5 billion from £23.6 billion. Yahoo Finance reported this was linked to higher debt interest costs over the past year.
AI Notice: This article was created wholly or predominantly with the assistance of artificial intelligence and was published without human editorial review.
This article is for general information only and does not constitute investment advice. Always do your own research before making trading decisions.