BoE Interest Rate Hikes Loom Amid Rising Inflation Pressures

The Bank of England (BoE) is expected to raise interest rates soon due to mounting inflation risks. Barclays and UBS Global Research are among those predicting rate hikes, with UBS economists Anna Titareva leading the team that expects the BoE to conclude that higher inflation would be more costly than tightening now.

The BoE kept interest rates at 3.75% on Thursday but predicted UK inflation could top 4% early next year. The meeting minutes also showed a more hawkish tone, signaling the possibility of rate hikes like those seen in Europe and the US.

UBS expects the central bank to start cutting rates in the fourth quarter of 2027, with the bank rate falling back to 3.25% by the third quarter of 2028. Markets are pricing in a 63% chance of a BoE hike in November, with another increase expected in December.

However, Goldman Sachs notes that softer economic data or a decline in energy prices could keep policymakers on hold. Morgan Stanley expects the BoE to be on a prolonged hold if energy prices ease, while BofA Global Research suggests any additional rate hike would likely serve as a precaution against inflation risks rather than signal a broader tightening cycle.