Economists Bet BoE Lifts Bank Rate to 4% This Week

The call: a first hike in over three years

A Bloomberg poll taken late last week points to the BoE delivering its first increase in more than three years on Thursday. Every one of the 35 economists surveyed expects the Bank Rate to move up to 4% from 3.75%, the level maintained for the past 11 months.

The same survey asked how the Monetary Policy Committee might line up. Close to 60% of respondents anticipate a 7-2 vote to raise rates, while 24% look for a 6-3 outcome. That would be a big shift from September's meeting, when just three members favored a hike. In total, 34 participants submitted vote split projections in the Oct. 29-30 poll, which uses a 25 bps hike - unchanged - 25 bps cut format for tallying votes.

Tone and projections are shifting higher

Officials' rhetoric has leaned toward tightening in recent weeks, and BOESPEAK - a Bloomberg Economics natural language model that tracks MPC communication - shows hawkish sentiment at its highest in nearly three years.

Economists also expect the BoE to lift its inflation forecasts for both this year and next. They see an upgrade to this year's GDP outlook and a lower unemployment projection as well, with a majority expecting the central bank to trim its unemployment forecast for 2026 and 2027. Note: percentages in the survey breakdowns may not sum to 100 because of rounding. In the materials, a single asterisk denotes the four quarter inflation rate in Q4, and a double asterisk marks private sector regular pay, four quarter growth in Q4.

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What economists are watching next

Dennis Shen, who teaches at Berlin's International School of Management, said, "The inflation outlook suggests this hike will be the beginning of a cycle, even if a short one, and not a one-off adjustment." He added, "UK inflation could climb above 4% by early next year - roughly twice the Bank's target - leaving policymakers with little space for complacency."

James Smith, an economist at ING Groep NV, put the spotlight on communication after the decision: "The key question is what forward guidance the Bank offers about its next steps." He said, "We suspect it will be highly non-committal, suggesting it could hike rates but that nothing is inevitable and everything is state-contingent."

Why it matters for your portfolio

If the BoE lifts to 4% and guides that further moves are data dependent, rate sensitive pockets of the UK market - from bank margins to mortgage activity - could see renewed repricing. And if inflation forecasts are marked higher while unemployment projections edge lower, the market may lean toward a tighter path for longer, supporting the pound and pressuring gilts.

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