BNY analysts expect the Bank of England to maintain rates at 3.75% amid tight fiscal space and market-driven tightening.
The Bank of England is likely to keep interest rates unchanged at 3.75% this week, despite energy-driven inflation pressures, as financial conditions have already tightened. Mortgage rates have risen sharply due to higher swap rates, reducing the need for further policy action, though reversals may be slow if tensions ease.
Markets have priced in around 42 basis points of tightening by year-end, which BNY considers excessive. However, fiscal relief measures, including potential tax threshold adjustments in early Q4, could support demand and limit gilt supply, bolstering GBP resilience.
While headline inflation risks persist, the BoE’s cautious stance reflects constrained fiscal space and the impact of prior market-driven tightening. At most, two dissents are expected in the rate decision.