Bank of England expected to keep rates steady as inflation remains at 3%

Bank of England Rate Outlook: Market Expectations vs. Reality

Market forecasts for the Bank of England appear unusually aggressive, with traders anticipating three rate increases this year. However, these projections may be skewed due to limited liquidity in the swaps market. Given the current oil and gas prices, we believe there is insufficient justification for further rate hikes at this stage.

Our updated projection suggests the Bank of England will likely keep rates unchanged throughout 2026, with the possibility of rate reductions returning in early 2027. It remains uncertain where the true threshold for raising rates lies, as last week’s policy meeting offered little clarity. Notably, research from the Bank last summer indicated that secondary inflationary effects generally become more significant under certain conditions.