Key Takeaways
- An interest rate rise in November would be the first in more than three years, and follow six meetings where no change was made to monetary policy.
- UK inflation is expected to keep rising toward the end of the year, increasing pressure for the Bank of England to raise interest rates.
- The OECD says that falling UK inflation and weakening economic growth into 2027 means the BoE doesn’t need to increase rates.
The Bank of England is expected to raise interest rates twice in the final quarter of 2026, a move that would end the central bank’s run of six rate holds and echo recent decisions by the US Federal Reserve and European Central Bank. It would be the first time the UK central bank has raised interest rates since August 2023 and see the base rate move from 3.75% to 4.25%.
BoE rate setters will announce their decision on Nov. 5, and derivatives markets imply an 86.4% chance of a rate hike, followed by a 57.7% chance of another increase at the Bank’s meeting on Dec. 17. Two rate rises in a row would be a significant contrast to the trajectory predicted at the start of the year and before the start of the Iran war, where falling inflation was expected to pave the way for the BoE to cut rates multiple times—following on from four cuts in 2025 and two in 2024.
The Bank’s Monetary Policy Committee will be watching the contents of the Andy Burnham government’s first budget on Oct. 28 very carefully to see if there is evidence of inflationary policy. This will be a “critical” factor in its next steps, says Michael Browne, global investment strategist at Franklin Templeton Institute.
“The concern is that inflation, driven in part by higher food and energy costs, may continue to rise, while the selloff in the bond market has yet to run its course. Sterling may also have weakened, particularly if other central banks have already moved,” he adds.
Despite the market signals, the voting pattern of the MPC remains weighted toward holding rates: The last meeting in September saw six members vote for no change and three to raise rates to 4%. In the hold camp is Governor Andrew Bailey. But his deputy, Dave Ramsden, says rates will need to rise if higher inflation persists.
How Rising Inflation Could Impact BoE Rate Decisions
Rising domestic energy, food, and fuel costs—specifically the increased cost of diesel—are still hampering the Bank’s efforts to bring CPI back to the 2% target. For the 12 months to August 2026, where CPI inflation rose to 3.1%, higher fuel costs were primarily responsible, according to the Office for National Statistics. According to the average of economist estimates compiled by FactSet, the Consumer Prices Index will rise to 3.5% in September.
The rise in energy prices is expected to continue, particularly as the Ofgem price cap rises once more for the period October to December 2026. Food inflation is also a concern for policymakers. Prices are expected to be rising by 4% by the end of the year. Industry groups, including the Food & Drinks Federation, warn of food inflation nearing 7% in 2027.
The MPC also has its eye on other sources of inflation. These include “El Niño” weather events, which could cause supply chain shortages in 2027, and the impact of artificial intelligence on the UK economy.
What if the BoE Holds Interest Rates This Year?
Not everyone is convinced of the need to increase interest rates in Q4. The Organisation for Economic Co-operation and Development argues that the UK central bank doesn’t need to raise interest rates at all, and should cut rates in 2027 as inflation falls and the economy slows. Oxford Economics, a forecasting and advisory firm, says Bank of England policy is already restrictive enough, and that it will likely “sit tight” well into 2027, before cutting rates thereafter. This divergence of opinion will be of interest to plenty of mortgage holders, many of whom are due to remortgage their fixed-rate deals this year and likely to face higher monthly payments. Mortgage rates have already begun to rise again in response to fears of a rate rise, with big lenders like HSBC HSBA and NatWest NWG all increasing the cost of mortgage borrowing for their customers.
When Are the Next Bank of England Decisions?
- Nov. 5, 2026
- Dec. 17, 2026
- Feb. 04, 2027
- March 18, 2027
- Apr. 29, 2027
- Jun. 17, 2027
