Updated: 1 - As rising energy prices intensify inflation concerns, Bank of America predicts the Bank of England will raise interest rates twice.

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Reuters, Sept 23 - As rising energy prices have heightened the risk of persistent inflation, Bank of America Global Research has become the latest brokerage to predict that the Bank of England will raise interest rates twice within the next six months.

In a report released Wednesday, the brokerage said it expects the central bank to hike rates by 25 basis points each in November and February, reversing its previous forecast that "rates would remain unchanged until a cut in November 2027."

This change in forecast follows last week's Bank of England meeting (link), where policymakers took a more hawkish stance on inflation risks, particularly those stemming from the recent surge in oil and natural gas prices , prompting Barclays, UBS Global Research (link), and JPMorgan (link) to also predict a rate hike.

This month, the Bank of England stood out among major central banks, keeping rates unchanged while the Federal Reserve, European Central Bank, and Bank of Japan all opted to raise borrowing costs.

"We expect the domestic transmission of the energy shock and second-round effects on inflation to still be somewhat contained, but the risks are skewed to the upside," Bank of America economists said in a report.

The brokerage pointed out that if inflation remains around 4% at the start of next year, it could drive wage growth and worsen domestic inflationary pressures, increasing the risk of policymakers tightening monetary policy further.

According to London Stock Exchange Group (LSEG) data, markets currently place the probability of a Bank of England rate hike in November at 67%, and also expect another increase in December.

Despite the adjustments in outlook, Bank of America said the market may have overestimated the extent of tightening, as it expects only two rate hikes before the Bank of England begins cutting rates in 2028, eventually lowering rates back to 3.5%.

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