Will the BoE deliver the expected interest rate hike to 4.00%?

• Expectations point to a Bank of England policy rate increase to 4.00%.
• Inflation in the UK continues to run significantly above the BoE’s target.
• Near two-month highs, GBP/USD continues to trade around 1.3500.

The monetary policy outlook comes into focus on Thursday as the Bank of England (BoE) announces its latest decision at its seventh rate-setting meeting of 2026.

A quarter-percentage-point increase to 4.00% is expected by market analysts, which would take the ‘Old Lady’s’ policy rate to its highest since November 2025.

Following the Monetary Policy Committee’s (MPC) announcement, the meeting minutes will be released as usual, setting out the deliberations behind the decision.

September saw the central bank leave interest rates unchanged at 3.75%, with the MPC voting 6-3. The split signalled an impasse as policymakers assessed how the continuing Middle East crisis could affect the UK economy.

Why do inflation and geopolitics remain in focus?

With UK inflation still above target, Bank of England Governor Andrew Bailey described the situation as “enormously frustrating” in his latest remarks. However, he warned that judging the strength of any second-round effects remained premature. These effects have so far appeared limited, as businesses have prioritised cost reductions over more aggressive price increases.

Although economic activity was still softer than the Bank would prefer, Bailey noted that the UK economy had held up better than anticipated. He identified Middle East developments as the key driver of gilt yields, introducing further uncertainty into the policy outlook.

Rather than signalling a firmly hawkish stance, Bailey’s comments conveyed caution. Before reaching a clear view on its next policy step, the BoE still needed further evidence of whether the inflation shock was taking root.

What could the BoE rate decision mean for GBP/USD?

A rate increase appears to be the broadly favoured outcome among market participants for Thursday at 12:00 GMT.

Alongside the rate decision itself, the distribution of votes across MPC members will draw scrutiny. An unusual voting outcome could move the British Pound.

Ahead of the meeting, a fourth consecutive week of gains in GBP/USD is helping the pair further reverse the steep decline that began in late August.

Pablo Piovano, Senior Analyst at FXStreet, said: "Cable keeps the multi-week recovery well in place, managing to clear its key 200-day SMA around 1.3420, therefore allowing for the rebound to continue," The next upside level is the September peak of 1.3567 (September 9), ahead of August’s high of 1.3675 (August 21).

Piovano adds that meaningful downside support does not emerge until the 2026 low of 1.3137 (October 14). Below that lies the November 2025 trough of 1.3010 (November 4).

He concludes: “Momentum indicators seem to favour extra gains, as the Relative Strength Index (RSI) climbs past the 65 level, while the Average Directional Index (ADX) around 22 is indicative of a fairly firm trend,”