UOB’s Lee Sue Ann highlights that the Bank of England (BoE) has resumed its tightening cycle, raising the Bank Rate to 4.00% and adopting a hawkish stance due to resurgent inflation risks. The November Monetary Policy Report forecasts consumer price index (CPI) inflation nearing 5.0% by mid-2027, with a return to the 2% target only in the third quarter of the following year.
The BoE now expects inflation to average 3.1% year-over-year in the third quarter of 2026, rising to nearly 5.0% by mid-2027. This outlook marks a significant upward revision from the July report, where inflation was projected to peak around 1.5-2.0 percentage points lower. The prolonged Middle East conflict has contributed to higher energy prices, exacerbating inflationary pressures.
UOB anticipates another 25 basis points hike to 4.25% in February, with risks leaning toward further tightening if inflation persists. The policy shift reflects a broader concern that elevated energy prices could lead to higher business costs and wage demands, prolonging inflation beyond initial expectations.
Lee Sue Ann notes that the November rate hike is no longer seen as a one-off move. The BoE’s projections suggest inflation will remain above target until the third quarter of the following year, reinforcing the need for continued vigilance and potential additional rate increases.