BofA Sees Two BoE Rate Hikes as Energy Prices Fuel Inflation Worries

Bank of America Global Research (BofA) is now expecting two interest rate hikes from the Bank of England (BoE) over the next six months. The forecast comes as energy prices continue to surge, raising concerns about persistent inflation. BofA's revised outlook follows last week's BoE meeting, where policymakers took a firmer stance on inflation risks.

The brokerage expects the central bank to raise rates by 25 basis points in November and February, reversing its previous forecast for no changes before a rate cut in November 2027. Inflation staying near 4% early next year could fuel wage growth and broader domestic price pressures, increasing the risk that policymakers tighten policy further.

Markets are pricing in a 67% chance of a BoE rate hike in November, with another increase expected in December. Despite the revised outlook, BofA said markets may be pricing in too much tightening, as it expects only two rate hikes before the BoE begins cutting rates in 2028.