Two-thirds of investors predict UK interest rate hike in November

The Bank of England’s cautious approach to managing interest rates is increasingly coming under strain.

The Monetary Policy Committee (MPC) has kept rates on hold at 3.75% for six consecutive meetings, but there are mounting signs this prolonged pause might be about to end.

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The consumer prices index (CPI), the UK’s main measure of inflation, sped up to 3.1% in August, largely due to the global oil price shock triggered by the Iran war gradually feeding into the UK economy.

Not only is inflation moving further away from the central bank’s 2% target, but prices are expected to continue their upwards trajectory as the year plays out. The energy price cap increases again in October and could have a pronounced inflationary impact should a cold winter arrive.

Cut, hold or hike?

With the MPC facing some big decisions, especially with the next meeting arriving the week after this year’s Autumn Budget, we sought to gather the views of investors.

We conducted a poll on ii’s Community app, asking members what they believe will happen to rates at the 5 November meeting. At the time of writing, the poll had gathered 984 responses:

The results suggest the majority of investors believe fiscal policy will tighten, with two-thirds (66%) predicting the Bank Rate will rise for the first time since August 2023.

Elsewhere, one in four members believe the MPC will extend its cautious approach, keeping rates at 3.75% for the seventh meeting on the bounce, while a fraction of investors (3%) believe that rates will be cut.

Some 6% are unsure what the MPC will do, perhaps waiting to see how things pan out between now and the Autumn Budget, particularly with government borrowing costs firmly in the spotlight.

Signals of hikes becoming stronger

Earlier this month, the US Federal Reserve unanimously voted to increase rates, nudging up the benchmark range 0.25 percentage points from 3.5-3.75% to 3.75-4%. Citing its reasons for tightening fiscal policy, the Fed said that prices had been above its 2% target for five years.

The Bank of England didn’t follow suit the next day, but the mood around higher rates has shifted, with more MPC members signalling that increases are edging into their thinking.

Markets are pricing in three to four hikes by the end of 2027, which would shunt the Bank Rate into the 4.50% to 4.75% ballpark, with mortgage rates already ticking up in anticipation of this outcome.

Policymakers, however, have continued to adopt a ‘wait and see’ approach, holding out for richer evidence of second-round inflationary effects. Bank Governor Andrew Bailey warned that if persistent conflict in the Middle East triggers these to emerge, “it is likely that policy may have to tighten.”

However, the Organisation for Economic Co-Operation and Development (OECD) earlier today offered a glimmer of hope to borrowers, claiming that current rates are sufficient to keep inflation in check. In its interim outlook, the OECD slashed its 2026 inflation forecast for the UK to 3.1% from 3.7% in June.