Bank of England: Gradual hiking path – Rabobank

Rabobank strategist Stefan Koopman expects the Bank of England’s (BoE) Monetary Policy Committee (MPC) to raise Bank Rate to 4.00% in November 2026 in a 7-2 split, followed by another 25bp hike to 4.25% in February 2027. The report stresses that higher market rates have already tightened conditions, but argues policymakers must now validate pricing. Fiscal policy is seen as a minor offset to the energy-driven inflation shock.

MPC seen validating market tightening

"We expect the Bank of England to raise Bank Rate by 25bp to 4.00% next week. We think the vote will be split 7-2, with doves Dhingra and Taylor preferring to keep rates unchanged."

"We therefore add another 25bp hike to our forecasts, taking Bank Rate to 4.25%. That more or less would align Bank rate with spot inflation."

"Financial conditions are already doing some of the MPC’s work, giving it room to move gradually without looking complacent. By February, fresh forecasts will also give policymakers more information to go on."

"The overall fiscal stance is still slightly restrictive over the coming years. We continue to think that this will exert some downward pressure on Bank Rate over the longer run."

"More hikes could still be needed. But by late Q1, the calculus may shift again: even if oil prices remain elevated, as we forecast, a credible prospect of de-escalation in the US-Iran conflict could be enough for the MPC to look through current inflation, essentially betting that the worst is behind it."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)