Analysts expect one more BoE rate hike, likely Feb, after 4% move

Economists at Deutsche Bank, ING, Jefferies and UBS expect the Bank of England to raise interest rates once more, most likely in February, after all nine policymakers voted on Thursday to lift Bank Rate to 4% from 3.75% and the bank forecast inflation peaking at 4.9%.

UBS had expected a 7-2 split. Catherine Mann voted for a larger rise of 50 basis points. UBS said the outcome signalled at least one more 25 basis point hike.

ING economist James Smith said the 4.9% peak is above ING’s own forecast and above most other economists’ predictions.

Deutsche Bank’s Chief UK Economist Sanjay Raja called a December hike "finely balanced" but said February was marginally more likely and expected a 5-4 vote to hold in December. Jefferies economist Modupe Adegbembo said December looked too soon given limited evidence of knock-on effects in wages and prices.

ING said the Bank would likely hold in December if energy prices keep drifting lower and oil stays below $100 a barrel, but a December hike cannot be ruled out if the Middle East crisis escalates again.

Jefferies said the Bank’s forecast did not see oil falling to $95 a barrel until May 2027, versus $97 currently. Deutsche Bank said oil and gas prices sit over 5% below the Bank’s central assumptions over the next three years.

UBS said markets price 13.3 basis points of tightening for December, 31.7 by February and 70.3 by September 2027. Jefferies said markets price three more hikes over the next year, which it called too aggressive, while ING put the figure at roughly four.

Deutsche Bank and UBS see Bank Rate peaking at 4.25%; ING expects 50 basis points of tightening in total. Deutsche Bank expects rates to stay on hold until spring 2028, while ING said cuts could begin toward the end of 2027 or early 2028.

Bailey said the increase "should not be seen as the first in an inevitable long sequence of hikes," according to Deutsche Bank.

UBS expects sterling to remain resilient into year-end and targets 0.8350 for EURGBP by then.