Key facts
- Market pricing suggests UK interest rates could reach 4.75% by next summer.
- Economists at ING and Deutsche Bank doubt rates will rise as high as markets predict.
- ING's James Smith believes the Bank of England may cut rates by the end of next year.
- Deutsche Bank's base case forecasts a peak rate of 4.25% by February.
- Oxford Economics expects rates to reach 4.25% by February.
- Bank of England Chief Economist Huw Pill is skeptical of four rate hikes in the next year.
City economists are questioning market expectations that the Bank of England will significantly increase UK interest rates over the next year. While market pricing suggests at least four rate hikes, potentially reaching 4.75% by July and 5% by December 2027, many experts believe this aggressive tightening is unlikely. They cite a lack of strong evidence that rising energy costs are broadly fueling inflation and suggest that a portion of the priced-in hikes represents risk premia demanded by investors for uncertainty. Economists from ING, Deutsche Bank, and Oxford Economics anticipate a more moderate rate path, with some even predicting rate cuts by the end of next year. Even the Bank's own Chief Economist, Huw Pill, has expressed skepticism about the necessity of such aggressive hikes.