The Bank of England (BoE) has adopted a notably hawkish stance, as highlighted by UOB economist Lee Sue Ann, holding the Bank Rate at 3.75% with a unanimous 9–0 vote [1]. This marks a significant policy shift, with previous expectations for three rate cuts in 2026 now removed. UOB now forecasts the GBP Repo Rate to remain steady at 3.75% through the fourth quarter of 2026, citing persistent inflation risks as the primary driver [1].
Despite economic and labor-market data that could have justified easing, the BoE has prioritized inflation risks, shifting its policy bias from easing to vigilance. The central bank's forward guidance has changed substantially, with the Monetary Policy Summary and Minutes explicitly signaling that rate hikes are now a possibility. The BoE stated it 'stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term' [1].
The BoE acknowledged that prior to the recent conflict, continued disinflation could have allowed for another rate cut at this meeting or in upcoming meetings. However, the new shock is expected to result in higher inflation in the near term, with increased risks of second-round effects in wages and price-setting, especially if higher energy prices persist [1]. 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 indicated that policy would need to be less restrictive if the shock proved short-lived or if economic slack widened materially [1].
CONCLUSION
The Bank of England's hawkish pivot and removal of rate cut expectations signal a firm commitment to combating inflation, supporting the outlook for the Pound. Market participants should anticipate steady rates and potential hikes if inflation pressures persist, with the BoE maintaining flexibility based on evolving economic conditions.