Rabobank forecasts BoE lifting rates to 4.00% next week, 4.25% in 2027
Rabobank analyst Stefan Koopman projects the Bank of England will lift its benchmark rate by a quarter point to 4.00% at the upcoming meeting, passing on a 7-2 vote, with another increase to 4.25% penciled in for February 2027.
According to Koopman, Monetary Policy Committee members Swati Dhingra and Alan Taylor will likely vote against the increase, sticking to their preference for unchanged rates while the rest of the panel backs the hike. Rabobank has now built in an extra quarter-point move into its projections, which would push Bank Rate close to matching the current pace of inflation.
The bank points out that tighter financing conditions, stemming from elevated market yields, are already handling part of what the MPC needs to achieve, leaving room for a measured, incremental approach rather than sudden action. Updated economic projections due around the February meeting should give committee members extra data to weigh.
Rabobank continues to characterize Britain’s broader fiscal position as mildly restrictive going forward, a dynamic it believes will exert some downward influence on Bank Rate over time, partly counterbalancing the inflationary pressure stemming from energy costs.
Koopman indicated that additional tightening beyond the February meeting cannot be ruled out, though he cautioned that circumstances might change again afterward. He suggested that if a believable path toward easing tensions between the United States and Iran emerges, the MPC could choose to disregard elevated inflation readings — even with oil prices remaining high — on the assumption that the worst of the shock has already passed.
Separately, traders have already fully priced in a Bank of England rate hike to 4.00% at the next meeting, a factor that has helped keep GBP/USD anchored near the 1.3400 level as the anticipated gap between US and UK rates narrows.
Why it matters: A Bank of England rate hike trajectory aiming for 4.25% by February 2027 would leave UK bond yields and sterling highly responsive to each MPC decision, with gilts and GBP/USD likely to react most strongly to any shifts in the tightening outlook Rabobank has described.