BoE Maintains 3.75% Rate as Barclays Anticipates Two Upcoming Increases

Key Takeaways

• The BoE maintained its policy rate at 3.75% in September while cautioning that inflation may surpass 4% by early 2027
• Barclays has revised its outlook to include 25 basis point rate increases in November 2026 and February 2027
• The Monetary Policy Committee split 6-3 on the decision, with three members advocating for an immediate rate rise
• Escalating tensions in the Middle East and climbing energy costs are prompting a more hawkish policy stance
• Goldman Sachs also anticipates a November increase but notes that weaker economic indicators could alter the trajectory

At its September gathering, the Bank of England maintained its key interest rate at 3.75%, though policymakers indicated that tighter monetary conditions may lie ahead. Barclays has adjusted its forecast to include two rate increases by the conclusion of February 2027.

The decision saw a 6-3 split among Monetary Policy Committee members to keep rates unchanged. Catherine Mann, Megan Greene, and Huw Pill dissented in favor of raising rates immediately. Meanwhile, Swati Dhingra and Alan Taylor adopted a more dovish position, emphasizing economic slack over inflationary pressures in their assessment.

Barclays Shifts to Hawkish Projection

After previously forecasting no change in rates, Barclays now anticipates 25 basis point increases in both November 2026 and February 2027. This revised outlook stems from updated guidance in the MPC’s September meeting minutes.

The investment bank highlighted three pivotal changes in the central bank’s messaging. First, the MPC now projects inflation will exceed 4% during the opening quarter of 2027. Second, policymakers see heightened risks of secondary inflation effects spreading through the economy. Third, multiple committee members indicated that more restrictive monetary policy would become necessary if Middle East tensions persist unresolved.

Under this scenario, Barclays projects the peak rate will reach 4.25%. The primary downside risk to the February increase would be a diplomatic resolution in the Middle East that drives energy prices lower.

Barclays also identified factors that could postpone the November move. Data availability before that meeting will be limited—just one inflation report, one employment update, and one GDP figure. Additionally, the gathering occurs only seven days following the Autumn Budget announcement, and the MPC will still be awaiting findings from its Annual Agents’ Pay Survey.

Wall Street Banks Converge on November Timeline

J.P. Morgan has similarly adjusted its forecast to include rate increases in November 2026 and February 2027. The firm had previously projected a single November hike followed by two reductions throughout 2027. Goldman Sachs concurs that a November increase appears probable, though it cautions that declining energy costs or disappointing economic data could keep the committee on the sidelines.

Morgan Stanley presents a contrasting perspective, suggesting rates are more likely to remain steady for a prolonged period. However, the firm acknowledged that persistently elevated commodity prices could necessitate tightening measures.

Financial markets are currently assigning a 63% likelihood to a November rate increase, based on LSEG pricing data.

The Bank of Japan similarly elevated rates to their highest level in 31 years on Friday, pointing to inflationary pressures partially attributable to the expanding Middle East crisis.

BoE Governor Andrew Bailey indicated that sustained regional conflict could necessitate more restrictive monetary policy. Deputy Governor Sarah Breeden stated that a rate adjustment would become increasingly justified if secondary inflation risks continue accumulating.

The MPC also reaffirmed its plan to reduce Asset Purchase Facility holdings by 20 billion pounds during the current year, advancing the total planned reduction to 50 billion pounds.

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