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UOB economist Lee Sue Ann highlights a hawkish pivot by the Bank of England (BoE), with the Bank Rate held at 3.75% and a unanimous 9–0 vote. The report removes prior expectations for three 2026 cuts, now forecasting the GBP Repo Rate steady at 3.75% through 4Q26 as inflation risks dominate.
Hawkish BOE stance underpins GBP outlook
“Despite economic and labour-market data that could have justified easing, the BoE has clearly prioritised inflation risks, prompting a shift in policy bias from easing to vigilance. This marks a decisive change in our base case: expectations for three rate cuts this year have been fully removed, with rates now likely to remain on hold and hikes back on the table should inflation pressures persist.”
“The BoE also significantly changed its forward guidance in the accompanying Monetary Policy Summary and Minutes, explicitly signaling that rate hikes are now a possibility. The BoE stated that it “stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term.” The BoE acknowledged that prior to the conflict, there had been continued disinflation (which would have allowed another cut at this meeting or at one of the upcoming meetings); however, the new shock will result in higher inflation in the near term, with second-round (wages and price-setting) effects risks being “greater the longer higher energy prices persist”.”
“The meeting minutes reinforced this hawkish shift, noting that “a larger or more protracted shock, which risked greater second-round effects in wage and price setting, would require a more restrictive policy stance.” Conversely, the BoE emphasised that policy would need to be less restrictive if the shock proved short-lived or if economic slack widened materially.”
