The Bank of England is likely to hold off on its next interest rate increase until February, according to a majority of economists surveyed in a recent poll, even as financial markets appear to be betting on a move before the end of the year. The survey, conducted between November 11 and 13, captured a divergence in expectations that could shape the near-term path of borrowing costs in the United Kingdom.
Of the 65 economists polled, all but one expected the Bank Rate to stay at 4.00% following the Monetary Policy Committee's meeting in the week before Christmas. The lone dissenter anticipated a rate rise at that meeting. The poll's findings stand in contrast to interest rate futures, which are almost completely pricing in a December increase.
The central bank last week voted 8-1 to raise rates by 25 basis points, with one member, Catherine Mann, preferring a 50 basis point increase. The vast majority of survey respondents projected the Bank Rate would peak at 4.25%. Only a handful saw an additional 25 basis point hike next year, taking the rate to 4.50%, while seven economists expected no further increase from the current 4.00% level.
Data dependency
Several poll participants indicated they would wait for the October inflation report, scheduled for release on November 18, before revisiting their forecasts. Others said they would need to see this month's inflation data, due just days before the bank's next rate decision, before making any adjustments.
Ellie Henderson at Investec, who expects the next rate rise in February, said:
“A December hike is certainly on the table, and we will update our view when we see the data that’s coming. We’re seeing from other central banks, if you do have a particularly hot inflation print, it can tilt the dial towards an earlier hike or a bigger hike. We don’t think an outsized hike is likely in the UK, but we could see a December rate hike.”
Inflation stood at 3.5% in September, up from 3.1% in August, according to official data. The October figures, due next week, are likely to show inflation climbing further above the central bank's 2.0% target. The poll's median forecast put the peak at 4.3% early next year, with inflation expected to slow over 2027 and average 2.6% in the fourth quarter. The Bank of England's own projections see inflation topping out around 5% in the second quarter.
Energy costs have surged, largely driven by conflict in the Middle East. British fuel bills are expected to rise around 20% in January when the regulator next adjusts retail prices to wholesale costs, coinciding with the colder winter months. Emma Wilks at HSBC noted:
“It will take some time for higher energy costs to fall out of the annual inflation rate. Outside of energy prices, food price inflation is likely to put upward pressure on inflation throughout 2027.”
Whether the Bank of England opts for a December increase will depend in large part on how energy prices trade in the coming weeks, according to the poll. The survey also highlighted the role of economic growth in shaping the policy outlook. Official data showed Britain's economy accelerated to 0.7% last quarter, the fastest pace in two and a half years. Economists raised their gross domestic product expansion forecast for this year to 1.5% from 1.3%, but held their expectation for next year at 1.2%.
Nikesh Sawjani at Lloyds said:
“Repeatedly stronger GDP outturns suggest that households and businesses may be better placed to absorb higher borrowing costs than previously assumed. That potentially reduces one of the constraints facing the MPC if inflationary pressures require policy to tighten further.”
Bank of England Deputy Governor Clare Lombardelli, asked on Tuesday about her voting intentions for upcoming MPC meetings, said:
“I wouldn’t rule December in or out, February in or out,”adding that each meeting was “live.”
The poll underscores the tension between market pricing and economist expectations, with the next round of inflation and energy data likely to determine whether the central bank acts in December or waits until February.