Bank of England preview: first rate hike in three years looks all but certain
The Bank of England looks set to raise rates to 4% on Thursday, with inflation running ahead of forecasts and firms lifting price expectations.
What markets expect from the Bank of England on Thursday
After more than three years of holding or cutting, the Bank of England (BoE) looks set to remind markets that rates can also go up, with investors and most analysts expecting the Monetary Policy Committee (MPC) to lift Bank Rate by 25bps to 4% from 3.75% when it announces its decision at 12pm this Thursday. Governor Andrew Bailey has said the likelihood of a hike grows the longer energy prices stay elevated, while MPC member Megan Greene has argued openly for tightening, warning that the risk of the energy shock feeding into broader inflation is greater than expected. The minutes and the Monetary Policy Report (MPR) arrive at the same time, which should give markets plenty to digest over lunch.
Inflation has run ahead of the BoE’s forecasts
The Bank’s July projections look somewhat optimistic in hindsight. UK CPI rose to 3.5% in September from 3.1% in August, its highest in 11 months, against a consensus forecast of 3.4% and a BoE projection of 3%, with higher petrol and diesel costs linked to the Iran conflict doing most of the damage. The more awkward detail for policymakers sits beneath the headline – services inflation climbed to 3.7% from 3.4%, core inflation rose to 2.8% from 2.6% and factory gate prices increased 4.6% YoY, the biggest rise since April 2023, while manufacturers’ input costs jumped 8.3%, suggesting there is more pressure still working its way through the pipeline.
Firms are lifting their own price expectations
The BoE’s own Decision Maker Panel adds weight to the hawkish case. Year-ahead CPI expectations rose to 3.3% in the three months to October from 3.1%, and 68% of firms expect to raise prices over the next 12 months, up 11 percentage points from September. Realised wage growth stands at 3.9%, with firms expecting only a modest easing to 3.4% over the coming year, which leaves the MPC contemplating the second-round effects on wages and services that central bankers spend most of their careers trying to avoid.
Vote split and guidance will shape expectations for December
With a hike largely priced in, attention will likely shift to the vote breakdown and to whether the MPC presents this as a one-off move or the first step in a tightening cycle. The revised inflation and growth forecasts in the MPR will be scrutinised for how persistent the Bank believes the energy shock will prove, with oil having traded above $100 a barrel and 10-year gilt yields recently around 5.31%, as well as for any acknowledgement of the growth cost of tighter policy. The global backdrop is mixed, the ECB, the Fed and the RBNZ having all held rates in recent days, which could leave the BoE looking distinctly hawkish by comparison. Chief economist Huw Pill briefs businesses on Friday 6 November, an early opportunity to clarify whatever the minutes leave ambiguous.
Important to know
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Connect with us
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Professional clients trading spread bets and CFDs can lose more than they deposit.
The value of shares, ETFs and other ETPs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results. Some ETPs carry additional risks depending on how they’re structured, investors should ensure they familiarise themselves with the differences before investing.
Crypto - Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment, and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.
Share dealing and IG Smart Portfolio accounts provided by IG Trading and Investments Ltd, CFD accounts are provided by IG Markets Ltd, spread betting provided by IG Index Ltd, cryptoassets services are provided by IG Digital Assets Ltd.
IG is a trading name of IG Trading and Investments Ltd (a company registered in England and Wales under number 11628764), IG Markets Ltd (a company registered in England and Wales under number 04008957) and IG Index Ltd (a company registered in England and Wales under number 01190902). Registered address at 88 Wood Street, London, EC2V 7QR. IG Markets Ltd (Register number 195355), IG Trading and Investments Ltd (Register Number 944492) and IG Index Ltd (Register number 114059) are authorised and regulated by the Financial Conduct Authority.
The information on this site isn’t directed at residents of the United States, Belgium or any particular country outside the UK and isn’t intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
