Key facts
- The Bank of England is expected to hold interest rates steady at 5.25% this week.
- Citigroup and Goldman Sachs forecast potential rate hikes by the Bank of England later this year or in early 2027.
- Rising oil prices and stronger-than-expected inflation data are key concerns for the BoE.
- The central bank is anticipated to slow its quantitative tightening program.
- Traders are pricing in approximately 47 basis points of rate hikes by the Bank of England by year-end.
The Bank of England is widely expected to hold its benchmark interest rate steady at 5.25% at its upcoming meeting, despite rising oil prices and forecasts for future hikes from some banks. Officials are awaiting clearer signs of sustained domestic inflation before considering further tightening. Governor Andrew Bailey has indicated that the central bank will not pursue a rate hike unless the surge in energy costs leads to more persistent domestic inflation.
Citigroup and Goldman Sachs have revised their forecasts, now anticipating rate hikes later this year or in early 2027, citing persistent inflation pressures. Goldman Sachs expects a quarter-percentage-point hike in November 2026, while Citigroup anticipates one hike in November and another in February 2027. Both brokerages had previously expected rates to remain unchanged throughout 2026. Traders are pricing in approximately 47 basis points of rate hikes by the Bank of England by year-end, according to LSEG data.
Rising energy prices, with oil climbing above $100 a barrel due to renewed hostilities in the Middle East, have added to concerns about Britain's inflation outlook. Data released earlier this month showed Britain's economy expanded at its fastest annual pace in 18 months in July. In line with consensus, Goldman Sachs expects the BoE to keep the bank rate unchanged at 3.75% at its September 17 meeting, though Citigroup anticipates a more hawkish message from the Bank of England this month. Both brokerages expect the central bank to eventually shift to rate cuts, forecasting the easing cycle to begin by the end of 2027.
The central bank is also anticipated to slow its quantitative tightening (QT) program, which reduces its bond holdings. Since February 2022, the BoE's bond portfolio has shrunk by over £400 billion. Further reductions to around £50 billion per year are anticipated from October 2026 to September 2027.