BoE preview: MUFG expects November rate hike as energy shock pushes UK inflation above 4%
The desk anticipates a 25 basis point rate hike by the Bank of England on November 5, driven by persistent energy price increases pushing UK inflation back above 4% in the coming months. Per the full note from MUFG, the BOE is likely unable to overlook the energy shock, given the economy's relative strength, and suggests a follow-up hike in February could further support the pound. Current market sentiment appears to favor sterling against weaker currencies, while UK gilts are under pressure due to rising yields and constrained fiscal space ahead of the Budget. Importantly, this call aligns with wider market expectations for continued tightening underpinned by energy cost fluctuations.
What the desk is arguing
The desk strongly believes that the Bank of England will increase rates by 25 basis points at its upcoming meeting, aligning with MUFG's expectations outlined in their recent commentary. The underpinning energy shock indicates that inflation will rise above 4%, compelling the BOE to act decisively.
High energy prices have proven persistent, and with domestic growth benchmarks tracking positively—such as a Q3 GDP expectation of about 0.65% quarter-on-quarter—MUFG suggests that the BOE is now boxed in by external inflation pressures and internal economic strength. Furthermore, they project that another rate hike could follow in February, reinforcing market support for GBP against slower-reacting currencies.
Where it sits in our coverage
Our current consensus target for GBP/USD is 1.3550, with a range spanning 1.2400 to 1.3800. Prominent firms contributing to this are: - rabobank: Dec-26 target of 1.3300 - bofa: Dec-26 target of 1.3700 - scotiabank: Dec-26 target of 1.3600
The desk's outlook on GBP strength in light of anticipated BOE tightening aligns with the broader consensus, which expects continued upward adjustments to the currency. This positioning is notably near the upper end of the consensus range.
How other firms see it
A group of firms, including hsbc and rbc, are aligned with our view, anticipating that proactive monetary policy will bolster GBP's position. Conversely, firms such as nomura and citi present a more cautious outlook, citing potential economic headwinds that could undermine the BOE's plans.
Market participants should also keep an eye on the USD/JPY trajectory, which may respond in tandem with the BoE rate path as cross-currency impacts gain relevance.
What the calendar says
As there are no high-impact events scheduled in the next 30 days, upcoming monetary policy changes will likely hinge on the November 5 meeting.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01MUFG forecasts a 25 basis point rate hike at the BOE's November 5 meeting due to inflation pressures.
- 02UK inflation is projected to exceed 4% as energy prices remain elevated.
- 03Another rate hike is likely by February, further supporting GBP.
- 04Gilts remain vulnerable as monetary tightening and fiscal constraints mount.
Market implications
Traders should watch for potential GBP strength against slower currency pairs, particularly if the BOE signals further tightening post-October. A level of 1.3550 is critical to monitor in GBP/USD, as this aligns with consensus and could indicate a stronger bullish trend coming.
Risks to this view
If energy prices stabilize or fall significantly, or if economic data reveals a slowdown that contradicts current optimistic growth forecasts, the BOE may pause its tightening cycle. This scenario could lead to a swift reversal of the current bullish outlook for GBP.
GBP/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UBS | Bullish | 1.5000 |
ING | Neutral | 1.3500 |
Société Générale | Bearish | 1.3300 |
A hike on November 5 would extend the energy-driven tightening seen across central banks. Any guidance pointing to a February follow-up would likely support sterling, particularly against currencies where central banks are seen as slower to respond. Gilts look the more vulnerable asset: 10-year UK yields already sit at the top of the G7 range, and further tightening alongside reduced fiscal headroom ahead of the Budget could keep pressure on longer-dated debt.
For equities, higher rates and energy costs weigh on domestically focused UK stocks, while the FTSE 100’s energy-heavy constituents offer some offset. Oil and gas remain the key swing factor: with household energy bills driving the expected rise in inflation, any further spike in prices linked to the Middle East war would strengthen the case for a longer hiking cycle. --- Earlier: UK September CPI inflation rises to 3.5%, reinforces BOE November rate hike expectations --- MUFG says the Bank of England cannot look through this energy shock the way it might like, because the UK economy is simply too strong to make waiting look safe. Summary: MUFG expects the Bank of England to raise rates by 25 basis points at its next meeting, with another hike in February to a 4.25% peak UK headline inflation is seen rising above 4% in coming months as higher energy prices feed through to household bills Energy prices have stayed elevated for longer than expected and have risen further in recent months, MUFG says A stabilising labour market, healthy growth and elevated underlying inflation leave the Bank of England struggling to look through the shock MUFG says UK Q3 GDP is tracking at about 0.65% quarter on quarter, and it forecasts growth of 1.5% in 2026 and 1.4% in 2027, above IMF projections Higher borrowing costs may have cut fiscal headroom to around £15 billion ahead of the Budget The Bank of England is likely to raise interest rates at its next meeting, as higher energy prices push UK inflation back above 4%, according to MUFG, which expects a further increase in February.
In its European macro and market outlook, MUFG said it expects a 25 basis point hike at the Bank of England’s next policy decision, due on November 5, followed by another in February, taking Bank Rate to a terminal level of 4.25%. The bank said energy prices have remained elevated for longer than anticipated and have moved higher in recent months. As those costs feed through to household bills, it expects headline inflation to rise above 4%.
MUFG argued that the Bank of England will struggle to look through the energy shock, as it might otherwise, because of the wider economic backdrop. The labour market is stabilising, growth is healthy and underlying inflation remains elevated. Services inflation measures are still running well above the Bank’s 2% target.
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Cross-firm research
GBP/USD Consensus Check: 1.355 Target, 1.333 Spot — Week of Oct 19, 2026
Cable trades 1.62% below the 20-firm median Dec-26 target of 1.355, with a 0.26-point dispersion that reflects genuine disagreement on the BoE-Fed divergence trade.
GBP/USD Consensus Check: 1.355 Target, 1.33 Spot — Week of Oct 18, 2026
Cable trades 1.63% below the 20-firm median Dec-26 target of 1.355, with a 0.26 dispersion that reflects deep disagreement on the BoE-Fed rate path.