BoE Paves Way for November Rate Hikes Amid Rising Inflation

Market analysts at MUFG expect the Bank of England to adopt a hawkish stance in its upcoming meeting, potentially paving the way for rate hikes as early as November.

The forecast comes amidst rising UK inflation driven by energy prices and a projected exceedance of the 4% mark after the January price cap reset. Despite a soft labour market and limited domestic price pressures, MUFG anticipates 50bp of BoE tightening starting in November, contingent on energy pricing remaining elevated.

According to Henry Cook at MUFG, the Bank of England is likely to signal that a rate hike in November is on the cards if energy pricing continues to rise. A majority of the Monetary Policy Committee (MPC) may still believe in a 'wait-and-see' approach, but this position looks increasingly shaky given recent developments.

Cook expects a 6-3 vote in favour of a hawkish hold, although a 5-4 split cannot be ruled out. He identifies Lombardelli as the most likely to join the dissenters. The case for pre-emptive tightening on a risk management basis will gain traction, MUFG believes.