BofA Global Research drops Bank of England rate hike forecast as inflation pressures ease
Lower energy prices and a softer economic backdrop are prompting a rethink of the UK interest-rate outlook as the Bank of England keeps borrowing costs unchanged. BofA Global Research now expects the central bank to hold rates steady this year, after previously projecting two increases in 2026.
Highlights
- BofA Global Research drops its forecast for two Bank of England rate hikes in 2026, now expecting rates to remain unchanged and only one 25-basis-point cut in November 2027.
- UK inflation stayed at 2.8% in May, maintaining April's 13-month low and coming in below both economist and Bank of England expectations.
- Despite softer inflation and BofA's revised outlook, LSEG data shows traders still price in at least one 25-basis-point Bank of England rate hike by year-end.
Forecast shift follows softer inflation signals
As reported by Reuters, BofA Global Research says it no longer has sufficient conviction to keep rate hikes in its base-case forecast, although it still describes the decision as a close call.The brokerage had previously expected two Bank of England rate increases in 2026, but it now sees rates staying unchanged. For 2027, BofA expects just one 25-basis-point cut in November 2027, compared with an earlier forecast for three cuts.
In a note, BofA says the balance of risks still leans toward a rate increase this year if geopolitical tensions re-escalate or stronger second-round inflation effects emerge. The forecast change comes shortly after the Bank of England leaves rates unchanged at 3.75% at its June meeting.
Market expectations remain more hawkish
Recent data show British inflation holds at 2.8% in May, unchanged from April's 13-month low and below the expectations of both economists and the central bank.With a truce deal in place between the U.S. and Iran, markets expect persistent inflation linked to oil price shocks to ease. Even so, traders still anticipate at least one 25-basis-point Bank of England rate hike by year-end, according to LSEG-compiled data.
The outlook for UK rates also stands against a broader global backdrop in which other central banks, including the Bank of Japan and the European Central Bank, raise rates in June. Hawkish projections from U.S. Federal Reserve policymakers also signal higher borrowing costs this year.
Our earlier article on the Bank of England’s shift to scenario-based guidance explained how the central bank replaced a single central forecast with three scenarios and added more individualized explanations of MPC votes. We noted that policymakers such as Megan Greene and Alan Taylor warned this approach could make it harder to build a shared view inside the committee, even as members diverge on whether rates should rise or stay on hold.
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