The Bank of England held its benchmark Bank Rate at 3.75% in September, with the Monetary Policy Committee voting 6-3 to maintain the unchanged stance. Barclays Bank, however, expects the BoE to raise rates by 25 basis points in November and again in February 2027, pushing the terminal rate to 4.25% under this scenario. The bank’s outlook reflects persistent inflation pressures, driven by recent energy price spikes and deteriorating geopolitical conditions in the Middle East.
The MPC’s inflation projections indicate that consumer prices could exceed 4% in the first quarter of 2027, a level deemed unsustainable by policymakers. Barclays notes that while the BoE has already begun unwinding its £50 billion Asset Purchase Facility—reducing holdings by £20 billion this year—the central bank’s approach remains cautious. The committee’s decision to delay action until November stems from limited pre-meeting data, including just one inflation report, one labour-market release, and one monthly GDP figure. Additionally, the timing coincides with the UK’s Autumn Budget, where fiscal measures could influence economic expectations.
Barclays anticipates the second rate hike in February rather than December, citing weak labour-market conditions and lingering economic slack. The primary risk to this timeline is a resolution to the Middle East conflict, which could ease inflationary pressures. Meanwhile, external MPC members Swati Dhingra and Alan Taylor have expressed skepticism about second-round inflation effects, while internal members Greene, Mann, and Pill had previously advocated for an immediate hike. Andrew Bailey, Governor of the Bank of England, and Sarah Breeden, Deputy Governor, have since moderated their stance, emphasizing the need for more data before decisive action.
The BoE’s quantitative tightening strategy remains on track, with the central bank planning to reduce its balance sheet by £50 billion over the year, aligning with Barclays’ expectations. The Bank’s focus on inflation risks—particularly from energy markets and geopolitical instability—has kept monetary policy under scrutiny, as policymakers balance tightening against potential economic slowdown risks.
