Bank of England Survey Shows Markets Expect Rates to Peak at 4.25%

London, United Kingdom — Financial market participants polled by the Bank of England expect one more quarter-point rise in UK interest rates, taking Bank Rate to 4.25% in February 2027, before cuts begin late next year, according to the central bank's November Market Participants Survey.

The survey ran from 21 to 23 October and drew responses from 80 market participants, down from 92 in September. Responses were collected before the Monetary Policy Committee (MPC) meeting, with participants assigning an average probability of 86.0% to a rate rise to 4%, 13.1% to no change and less than 1% to other outcomes.

That was the outcome. At its meeting ending on 4 November, the MPC voted by 8-1 to raise Bank Rate by 0.25 percentage points to 4%, with Catherine L Mann preferring a half-point increase to 4.25%. Economists had also expected the move, which was the bank's first rate increase since August 2023. Borrowing costs had moved ahead of the decision, with benchmark two-year mortgage rates up by nearly 50 basis points since the start of September, the minutes show.

The median respondent sees Bank Rate held at 4% after the 17 December meeting, then lifted to 4.25% on 4 February 2027 and kept there through the 16 September 2027 meeting and the November 2027 meeting, a year ahead. It then slips to 4.00% by the end of 2027, 3.75% in the first half of 2028, 3.50% in November 2028 and November 2029, and 3.25% five years ahead, in November 2031.

Views spread wider with time. The middle half of answers for November 2027 ran from 4.00% to 4.50%, and respondents gave 24.3% to a rate of 4.25%, 23.0% to 4.00%, 16.3% to 4.50% and 13.6% to 3.75%. Higher outcomes drew 8.7% for 4.75%, 3.3% for 5.00% and 1.1% for anything above, against 6.1% for 3.50%, 1.8% for 3.25% and 1.7% for anything lower.

December looks less certain than November did. Respondents put 71.9% on Bank Rate staying at 4% after the 17 December meeting, 19.5% on a further rise to 4.25% and 7.5% on a cut back to 3.75%, leaving 0.3% below that and 0.7% above 4.25%.

The shift since the September survey is clear. Back then, the median respondent expected Bank Rate to stay at 3.75% after the November meeting and one year ahead, and gave a 60.4% chance to no change in November against 35.0% for a rise. The bank's own minutes noted that the median path had risen since September but still sat below the UK short-term interest rate curve.

Energy now weighs most heavily on rate views. Asked to rank what shapes their expectations for the near-term path of Bank Rate, respondents gave energy and related commodity prices a mean weight of 30.3%, up from 25.9% in September. Realized inflation excluding energy followed at 18.5%, then domestic activity and labor market conditions at 17.2%, forward-looking inflation and price indicators at 16.4%, the MPC's communications at 15.3% and other factors at 2.3%.

On energy prices six months ahead, 46 respondents assumed Brent crude at $85 to $99 a barrel, 20 at $100 to $114, nine at $70 to $84, two at $115 to $129 and one at $55 to $69. For UK natural gas, 29 assumed 150 to 179 pence per therm, 23 assumed 180 to 209 pence and 14 assumed 120 to 149 pence, with three each in the 60 to 89, 90 to 119, 210 to 239 and 240 to 269 pence bands. Nobody chose the lowest or highest band for either fuel.

Those assumptions sit below recent market levels. Over the 15 UK working days ending 27 October, front-month Brent futures averaged $108 a barrel and UK front-month gas futures 216 pence per therm, 38% and 81% above their levels at the time of the July Monetary Policy Report, the MPC minutes show.

Most respondents expect the energy shock to spill over into wages to some degree. Of those who answered, 52 assumed moderate additional second-round effects, through some effect on short-term inflation expectations and so on pay. Another 17 assumed no new second-round effects, citing weaker worker bargaining and firm pricing power, and nine expected stronger, more persistent effects driven by higher long-run inflation expectations.

Respondents' median forecast has consumer price inflation at 3.8% at the end of 2026, peaking at 4.0% in the first quarter of 2027, then easing to 3.9% in the second quarter and 3.4% in the third. It falls to 3.0% one year ahead, 2.3% two years ahead, 2.1% three years ahead and the 2% target five years ahead. In September, the median for the end of 2026 was 3.3%.

That path is gentler than the bank's own, which has inflation rising from 3.5% in September to around 5% by the middle of next year. Three years out, respondents gave the highest probability, 31.5%, to inflation of 1.81% to 2.20%, ahead of 27.8% for 2.21% to 2.60%, 17.3% for 2.61% to 3.00% and 9.9% above 3%, with 9.0%, 2.7% and 1.9% on the lower bands. Their views on inflation five to 10 years ahead, a gauge similar to the five-year, five-year forward rate, put 38.2% on the 1.81% to 2.20% band, 24.4%, 14.3% and 8.7% on the higher ones and 9.8%, 3.0% and 1.6% on the lower ones.

Growth expectations have improved. The median sees UK GDP rising 1.4% in 2026, up from 1.1% in the September survey, then 1.3% in 2027 and 1.5% in 2028, matching its estimate of long-run potential growth.

Respondents also nudged up their estimate of the neutral rate, the level of Bank Rate that neither stimulates nor restrains the economy, to a median of 3.50% from 3.25% in September. Of those who answered, 42 saw the risks to that estimate skewed higher, 32 saw them as balanced and four saw them skewed lower. Asked about today's policy stance, 38 called it somewhat restrictive and five clearly restrictive, while 24 saw it as neither restrictive nor accommodative, nine as somewhat accommodative and three as clearly accommodative.

In the bond market, the median respondent expects the UK Debt Management Office to issue approximately $334 billion (£250 billion) of gilts in the 2026-27 financial year and approximately $388 billion (£290 billion) in 2027-28. The 10-year gilt yield is seen at 5.25% at the end of December 2026, up from 5.00% in the September survey, easing to 5.00% by the end of June 2027 and 4.93% by the end of 2027. The pound is expected at 1.34 against the U.S. dollar one year ahead, compared with 1.35 in September, while the euro is seen at 0.84 pounds, down from 0.86.

Bank of England staff design the survey as part of the bank's quantitative market intelligence work, and MPC members play no part in drafting it. The questions cover publicly debated topics and do not assume any particular policy action. Respondents are chosen for their activity and expertise in UK rates or money markets, their willingness to take part regularly and membership of one of the bank's external market committees. The bank reports medians with 25th and 75th percentiles for most questions, mean weights and probabilities where respondents assign them, and simple counts where they pick one option.

Policymakers are themselves divided on what follows. In the November minutes, Governor Andrew Bailey said that without news softening the risks to inflation he could see the argument for a further increase, while external member Alan Taylor described the move as a one-for-now insurance hike and not the start of a hiking cycle. That split could make the February meeting a close call, despite the survey's 4.25% median. The MPC's next decision is due on 17 December 2026.