Bank of England: November hike risk rises – Rabobank

The Bank of England kept the Bank Rate at 3.75% during a 6-3 vote, but Rabobank's Stefan Koopman predicts a 25 basis point hike to 4.00% at the November meeting. He considers rising inflation risks due to higher energy prices and the Middle East conflict as contributing factors. The MPC's communication reinforced the view that the balance of risks leans more towards higher inflation, which could become a more pressing policy concern if energy prices remain unchanged.

The Bank of England appears cautious and would still prefer to keep rates on hold for as long as possible. However, unless the situation in Iran de-escalates, a rate increase appears inevitable. The November meeting is now a live one, with the Bank of England being the only major central bank yet to tighten policy in response to the latest energy shock.

Rabobank forecasts a 25bp rate hike for November, assuming a smooth Autumn Budget absorption. Domestic economic conditions do not warrant significant tightening, and the sustained hiking cycle currently priced by markets is not expected. Bank Rate at 3.75% is already restrictive, around 50 basis points above neutral, and any further increase is likely to be temporary. The MPC may ultimately need to reverse the move with an additional rate cut in 2027 and 2028.