BoE Rate Cuts Set to Reverse as Inflation Concerns Grow

Citigroup Research is predicting that the Bank of England will raise interest rates in the fourth quarter of 2026 and again in the first quarter of 2027.

The bank's Monetary Policy Committee is expected to keep rates unchanged at 3.75% this month, with three members - Pill, Greene, and Mann - dissenting in favor of a 25-basis-point hike.

Citi expects the hikes to come in November and February, with downside risk that the committee continues holding if the conflict in the Middle East pauses.

The broker has revised up its headline inflation forecast, expecting it to peak at an average of 3.5% in the fourth quarter of 2026 and 3.6% in the first quarter of 2027, compared with the Bank of England's own summer projection of a peak of 3.2%.

Despite expecting hikes, Citi kept its forecast for two 25-basis-point rate cuts at the end of next year and continued to see the terminal rate at around 3.75%, which most MPC members think is already restrictive.