Bank of America Global Research expects that the Bank of England will raise interest rates twice over the next six months, marking a radical shift from its previous estimates, in light of the increasing risks associated with continued inflationary pressures resulting from rising energy prices.
A research note issued by the bank indicated that interest rates are likely to be raised by 25 basis points next November, followed by a similar increase in February 2027. This amendment comes to cancel the bank’s previous expectations, which were likely to stabilize interest rates before starting to reduce them during November 2027.
This shift in expectations came in the wake of the recent Bank of England meeting, which reflected a more stringent approach to confronting inflation, coinciding with a rise in oil and gas prices. These data have prompted a number of major financial institutions, including Barclays, UBS, and JPMorgan, to adopt similar expectations targeting the resumption of interest hikes starting in November.
It is noteworthy that the Bank of England had kept the interest rate at the level of 3.75%, warning at the same time of the possibility of the inflation rate exceeding the 4% barrier at the beginning of 2027 due to growing energy costs, amid growing fears that these price pressures would be transmitted to the wage sector and local inflation rates.
In the same context, current market pricing indicates that there is a probability of about 67% to approve an increase in interest rates during November, while “Bank of America” expects the British Central Bank to be satisfied with only two increases, before it begins a new cycle of reducing interest rates during the year 2028.
