Bank of England rate expected to rise to 4% as inflation climbs and economic outlooks diverge
Key Facts
Economists polled by Reuters expect the Bank of England to raise its interest rate to 4.0% from 3.75% on Thursday, 5 November, its first increase since August 2023. In a Reuters poll published on 15 October, 54 of 63 economists forecast a 25-basis-point increase in November. A September poll had found that about 90% of respondents expected rates to remain unchanged for the rest of the year. But the forecasts do not mean the decision is settled: the Bank will announce its decision, monetary policy summary, meeting minutes and Monetary Policy Report at 12 noon. The decision comes as inflation has risen and businesses face higher consumer price expectations, while other data point to relative weakness in some measures of activity and demand.
Data from the Office for National Statistics showed the Consumer Prices Index rose 3.5% year on year in September, compared with 3.1% in August, while the index increased 0.4% month on month. Transport costs, particularly motor fuels, made the largest upward contribution to the annual rate changes in both the Consumer Prices Index and the Consumer Prices Index including owner occupiers’ housing costs. By contrast, restaurants and hotels made the largest partial downward contribution. In business expectations, estimates for consumer price inflation over the coming year rose to 3.3% on average in the three months to October, from 3.1% in the three months to September. Three-year inflation expectations remained at 2.8%, according to the Bank of England’s business survey.
The same survey data show that companies’ actual annual wage growth was 3.9% on average in the three months to October, down 0.1 percentage points from the three months to September. Companies expected wage growth of 3.4% over the coming year, unchanged from the previous period. In October, 68% of companies said they expected to raise prices over the next twelve months, while 71% expected their profit margins to fall over the same period. This forms part of companies’ assessment of the impact of the latest energy shock on their businesses. The Bank of England’s Agents’ summary also reported that average pay settlements for 2026 so far remained at 3.6%.
In the September meeting minutes, the Monetary Policy Committee kept rates at 3.75% by a 6-to-3 majority. The three dissenting members voted to raise them by 0.25 percentage points to 4%. The minutes said the energy shock linked to the conflict in the Middle East increased inflation risks, and that a mechanical update to Bank staff estimates pointed to inflation potentially exceeding 4% by a little in early 2027. The Bank also said Ofgem’s cap on household energy prices for October to December had risen to 1,723 pounds sterling. The two-year fixed mortgage rate was about 95 basis points higher than before the conflict broke out, according to the minutes.
Economists do not expect consensus on further increases after November: 30 of 61 economists in the October poll saw rates rising again in the first quarter of 2027. The poll forecast average inflation of 3.6% in the fourth quarter of 2026, 3.8% in the first quarter of 2027, and then 3.0% during 2027. By contrast, gross domestic product data showed monthly growth of 0.1% in August, after growth of 0.4% in both July and June. The services sector recorded no growth in August, according to the Office for National Statistics. The Bank’s Agents’ summary described private sector output growth as modest and uneven across sectors, with consumer demand remaining fragile and price-sensitive.
The Bank’s Agents expected food prices to rise between 3% and 4% by the end of 2026, with food price pressures remaining elevated in the first half of 2027 as contracts are repriced. On household borrowing, net borrowing by individuals through consumer credit fell to 1.9 billion pounds sterling in September, from 2.7 billion in August. September’s figure was slightly below the six-month average of 2.1 billion pounds. The Bank of England is due to publish its next Decision Maker Panel data on 4 December 2026. The next event for markets is the Monetary Policy Committee decision on 5 November at noon, when the Bank will publish the November summary, minutes and Monetary Policy Report.