Barclays backs November BoE hike, warns Middle East conflict could spur more

Barclays anticipates a 25-basis-point increase from the Bank of England in November, following the central bank's decision to maintain rates steady. This decision was influenced by an unexpectedly altered medium-term energy outlook. Barclays also cautioned that a prolonged Middle East conflict could necessitate further rate hikes.

This stance echoes J.P. Morgan's expectations, which suggest potential rate increases in November 2026 and February 2027, along with a warning that the Middle East crisis could prompt additional tightening of monetary policy. The Bank of England recently kept interest rates on hold at 3.75% after a meeting, but its minutes indicated a more aggressive stance, hinting at the possibility of joining Europe and the US in raising borrowing costs.

The conflict has escalated with fresh strikes exchanged between Saudi Arabia and Iran-backed Houthi rebels, further widening the conflict's reach. The US and Iran have not conducted peace talks since the interim agreement reached in June unraveled rapidly. Barclays analysts, led by Jack Meaning, see a potential quarter-point increase in February 2027 if the Middle East situation persists.

Currently, markets anticipate a 63% chance of a Bank of England hike in November, with another increase expected in December. The Bank of Japan also raised rates to a 31-year high on Friday, signaling its readiness to continue increasing borrowing costs due to the expanding Middle East conflict contributing to global inflation pressures.

However, Goldman Sachs cautioned that softer economic data or a drop in energy prices might still keep policymakers in a holding pattern. Morgan Stanley argued that rates are likely to remain unchanged for an extended period, but persistent commodity-price pressures failing to ease could still lead to rate hikes in November and February.