Deutsche Bank Sees Two UK Rate Hikes Amid Rising Inflation Concerns

Deutsche Bank has revised its forecast for UK interest rates, now expecting two quarter-point hikes in November and February. The central bank's decision to increase borrowing costs is a response to rising inflation, which hit just over 3% year-on-year in August.

The hikes are expected to be 'insurance hikes' rather than the start of a sustained tightening cycle, with energy prices still playing a significant role in determining the outlook. The Bank of England's Monetary Policy Committee left its guidance unchanged, but the voting split remained the same as in July, with three members backing rate increases.

The September policy decision hinted that the central bank's tolerance for elevated inflation is beginning to wane, with Governor Andrew Bailey attributing almost all the rise in consumer prices since the Middle East conflict began to higher energy prices. Headline inflation has risen above core inflation, at 3.1% versus 2.6%, while domestically generated inflation has barely moved in recent months.