Deutsche Bank Predicts Double UK Interest Rate Hikes Amid Energy Price Pressures

Deutsche Bank has revised its forecast for UK interest rates, predicting two quarter-point hikes by the Bank of England in November and February. The bank cites the September policy decision as evidence that the central bank's tolerance for elevated inflation is waning.

The hikes are expected to be 'insurance hikes' rather than the start of a sustained tightening cycle, with energy prices remaining a key factor in the outlook. UK inflation rose to just over 3% year-on-year in August and is forecast to reach around 4% by year-end.

Deutsche Bank's analysis suggests that the current energy shock is roughly a third of the size of the 2022 shock, implying about 50 basis points of tightening under a simple scaling exercise. The bank's Taylor Rule estimates put the appropriate policy rate only slightly above 4%, but notes that its case for further hikes would weaken if energy prices fell sharply in coming weeks.