Bank of England Holds Rates at 3.75% as Barclays Forecasts November and February Hikes

TLDR

• The Bank of England held rates at 3.75% in September but warned inflation could exceed 4% in early 2027
• Barclays now expects 25 basis point hikes in both November 2026 and February 2027
• The MPC voted 6-3 to hold rates, with three members backing an immediate increase
• Middle East conflict and rising energy prices are driving the hawkish shift
• Goldman Sachs also expects a November hike but says softer data could keep rates on hold

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The Bank of England kept its benchmark interest rate at 3.75% at its September meeting, but signaled that higher borrowing costs could be coming. Barclays now expects two rate hikes before the end of February 2027.

BOE 🇬🇧 HOLDS RATES AT 3.75%, AS EXPECTED

Vote: 6-3 to hold, with 3 members backing a hike.

BoE now sees inflation above 4% in early 2027 vs a prior 3.2% peak, while Q3 GDP growth is seen at 0.4% vs 0.1%.

— Wall St Engine (@wallstengine) September 17, 2026

The MPC voted 6-3 to hold rates steady. Three members, Catherine Mann, Megan Greene, and Huw Pill, voted for an immediate increase. Two other members, Swati Dhingra and Alan Taylor, took a softer stance, putting more weight on economic slack than inflation risk.

Barclays Reverses Its Rate Forecast

Barclays had previously expected rates to stay on hold. The bank now calls for a 25 basis point hike in November 2026 and another in February 2027, citing new language in the MPC’s September minutes.

The bank pointed to three key shifts. The MPC now expects inflation to top 4% in the first quarter of 2027. It also sees a greater risk of second-round inflation effects. And several MPC members said tighter policy would be appropriate if the Middle East conflict is not resolved soon.

Barclays sees the terminal rate reaching 4.25% under this scenario. The main risk to the second hike, the bank said, is a resolution of the Middle East conflict that brings energy prices down.

The bank also flagged reasons the November hike could be delayed. Only limited data will be available before the meeting, including one inflation reading, one labour market release, and one GDP report. The meeting also falls just one week after the Autumn Budget, and the MPC will not yet have results from its Annual Agents’ Pay Survey.

Other Banks and Markets Align on November

J.P. Morgan also expects hikes in November 2026 and February 2027. It had previously forecast one hike in November followed by two cuts in 2027. Goldman Sachs agrees a November hike is likely but says a drop in energy prices or weaker economic data could keep the MPC on hold.

Morgan Stanley takes a different view, arguing rates are more likely to stay unchanged for an extended period. But the bank acknowledged that commodity price pressures failing to ease could push toward hikes.

Markets are currently pricing in a 63% probability of a November hike, according to LSEG data.

The Bank of Japan also raised rates to a 31-year high on Friday, citing inflation pressures tied in part to the spreading Middle East conflict.

BoE Governor Andrew Bailey said prolonged conflict in the region could require tighter policy. Deputy Governor Sarah Breeden said a rate response would become more appropriate if second-round inflation risks continue to build.

The MPC also confirmed it will reduce its Asset Purchase Facility holdings by 20 billion pounds this year, bringing the total planned unwind to 50 billion pounds.