Bank of America Global Research has become the latest brokerage to forecast that the Bank of England (BoE) will increase its benchmark interest rate twice over the coming six months. The analysts say the central bank is likely to lift rates by 25 basis points in November and again in February, reversing an earlier outlook that projected rates would stay steady before a cut in November 2027.
Why the outlook has shifted
The revised view follows the BoE’s most recent policy meeting, where officials adopted a firmer stance on inflation risks. A recent spike in oil and natural‑gas prices has heightened concerns that the energy shock could feed into domestic price growth and wage pressures.
“We expect the passthrough of the energy shock to domestic inflation and second‑round effects to remain somewhat contained, but risks are on the upside,” BofA economists wrote in their note. They warn that if inflation stays close to 4% early next year, it could spur wage growth and broader price pressures, prompting policymakers to tighten further.
Market expectations and broader context
London‑based market data from LSEG shows a 67% probability that the BoE will raise rates in November, with another increase anticipated in December. While the BoE has kept its policy rate unchanged this month, the U.S. Federal Reserve, the European Central Bank and the Bank of Japan have all moved to raise borrowing costs.
Despite the more hawkish forecast, BofA cautions that markets may be over‑pricing the degree of tightening. The firm expects only two rate hikes before the BoE begins cutting rates in 2028, ultimately bringing the policy rate back to around 3.5%.
Implications for households and businesses
Higher rates could raise borrowing costs for mortgages, business loans and other credit products in the United Kingdom. At the same time, the energy price surge is already putting pressure on household budgets, especially for those already facing high utility bills.
For businesses, tighter monetary policy may increase financing costs but could also signal a commitment to anchoring inflation expectations, which some firms view as a stabilising factor for long‑term planning.
What to watch next
Analysts will be monitoring the BoE’s upcoming policy statements, as well as further movements in global oil and gas markets. Any signs that energy prices begin to ease could soften inflation pressures and reduce the need for additional rate hikes.
Conversely, if energy costs remain elevated or if wage growth accelerates, the BoE may feel compelled to act more aggressively than the two hikes currently projected.
Stakeholders—from homeowners to corporate finance officers—should stay alert to the evolving outlook, as monetary policy decisions will continue to shape the economic landscape in the months ahead.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
