Bank of England poised to raise rates to 4% as inflation hits 3.5%

With the rise almost fully priced in, sterling will probably be moved by the vote split and the accompanying message; a 7-2 outcome paired with careful wording would most likely leave the pound softer. Gilts could gain if the Bank pushes back against market bets on several further hikes, particularly at the short end. Oil is the swing factor from here: renewed strength in crude and gas would add to pressure for more tightening, while any easing of Middle East tensions would weaken the argument for a second move. The updated inflation projections will be examined for how much of the energy shock the Bank expects to linger into 2027.

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An increase from the Bank of England is widely expected; what it signals about the following move is what counts.

Key points:

• Bank Rate is expected to rise by 25 basis points to 4%, with the BoE decision at 12:00 GMT (07:00 ET)
• September’s 6-3 vote left Bank Rate at 3.75%, with three members backing a rise
• Annual UK consumer price inflation accelerated to 3.5% in September from 3.1%, with fuel costs the main driver
• Goldman Sachs anticipates a 7-2 vote, with the committee ready to act but offering no firm signal
• Many economists expect a single further increase, to 4.25%, early next year – fewer than markets are pricing
• Projections are likely to put the inflation peak above 4% early in 2027

The Bank of England is widely expected to add 25 basis points on Thursday, taking Bank Rate to 4% in the cycle’s first increase, as energy costs push inflation further above target; the decision lands at 12:00 GMT (07:00 ET).

Such a step would follow the Monetary Policy Committee’s sharply split September gathering, when Bank Rate was left at 3.75% in a 6-3 vote; three members had already wanted a move to 4%. Inflation has deteriorated since then. Annual consumer price growth accelerated to 3.5% in September from 3.1% in August, a stronger reading than expected, with higher fuel prices the biggest factor.

Investors have largely priced the rise in, and forecasters are nearly unanimous. Goldman Sachs predicts a 7-2 vote for the increase, a breakdown broadly shared in the consensus, with the two probable dissenters inclined to hold. A few forecasters expect a tighter split.

The bigger question for investors is the next step. Money markets are pricing in several more increases for the year ahead, a trajectory many economists view as too aggressive. The prevailing assumption is a single extra quarter-point move early next year, to 4.25%, possibly in February, when inflation is forecast to peak. Goldman sees the committee indicating it would respond if price pressures built up, while avoiding any strong commitment on later meetings.

At this meeting the Bank will also publish an updated Monetary Policy Report. Goldman sees the near-term inflation peak in the first half of 2027 above 4%, and the Bank’s updated figures are likely to mark the peak higher. Oil and gas prices have moved above the adverse scenario the Bank laid out in July, raising the risk that the Middle East conflict leaves a more persistent imprint on UK inflation.

That prospect lies at the heart of the hawks’ concern. Beyond the headline, price pressures remain solid: services inflation is running close to 4%, and the biggest worry is that costlier energy works its way into wages and pricing decisions. Set against that, pay growth has been called soft and households are under strain, providing doves with reason to hold fire.

Sterling and gilt investors are likely to focus more on the guidance and the vote split than on the hike itself. If the Bank couples the expected increase with a cautious message, markets may trim their more aggressive pricing; any suggestion of a faster pace would reinforce it.