London Daily

Focus on the big picture.
Thursday, Oct 02, 2025

Bank of England poised to raise rates by most in 33 years

Bank of England poised to raise rates by most in 33 years

The Bank of England looks set to raise borrowing costs by the most since 1989 next week even as it prepares for a recession that could be deepened by spending cuts under new Prime Minister Rishi Sunak.

As well as raising interest rates on Thursday for an eighth meeting in a row to tame inflation above 10% - this time by three-quarters of a percentage point according to most analysts - the BoE is also due to become the world's first big central bank to start selling bonds from its stimulus stockpile on Tuesday.

After a period of turmoil in Britain, caused by the economic plans of former prime minister Liz Truss which sparked a bond market rout, the BoE's double-barrelled monetary tightening might look at odds with its current forecasts that the economy will be shrinking until 2024.

But with inflation still set to be way above the BoE's 2% target in 2023 and some of Truss's costly help for households and businesses still in place, the only way is up for borrowing costs.

"As things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August," BoE Governor Andrew Bailey said on Oct. 15.

On Aug. 4, the BoE raised rates by half a percentage point, its biggest increase in 27 years, and did so again in September.

Some of Bailey's inflation worries eased two days after he spoke when new finance minister Jeremy Hunt reversed almost all the tax cuts planned by Truss and shortened her income-boosting energy cap programme to six months rather than two years.

But the ongoing spread of inflation through Britain's economy this year means the BoE remains on high alert.

Oxford Economics Chief Economist Andrew Goodwin said the Monetary Policy Committee still faced a difficult balancing act.

"Many economic indicators have weakened since the committee last met in September, but the jobs market has remained tight and pay growth strong," Goodwin said.

FISCAL UNCERTAINTY


Investors are putting a roughly 90% chance on a 75 basis-point hike in Bank Rate to 3% on Nov. 3. That would be less than the full percentage-point expected before Truss's plans were scrapped but would still be the biggest hike by BoE in 33 years.

A Reuters poll of economists published on Tuesday showed most expected a 75 basis-point increase although a sizeable minority saw a bigger increase to 3.25%. On Friday, analysts at ING forecast a smaller, 50-basis point rise.

The picture further ahead is clouded by the delay to Sunak and Hunt's plans for repairing the public finances.

They have warned of tough decisions. British media reported they were considering 50 billion pounds of tax increases and spending cuts, more than estimates of the hole in the budget.

Hunt had been due to announce the plan on Oct. 31 but it was delayed until Nov. 17 after Sunak became prime minister.

Interest rate futures show investors are much less worried about inflation than they were just a few weeks ago with Bank Rate expected to peak at about 4.75% in 2023, down from more than 6% before the sudden end of "Trussonomics."

Deputy Governor Ben Broadbent added an extra dose of cold water on Oct. 20, saying the borrowing costs priced by investors in the preceding days would hammer the economy.

The BoE's plan to start selling some of the bonds it bought since 2009 to support the economy will also ease some of the pressure to raise rates.

Deutsche Bank said the planned 40 billion pounds' worth of sales over the next year were equivalent to about 25 basis points of rate hikes.

But Goodwin at Oxford Economics warned of potential dangers in the plan. "There is no pressing reason to kick off quantitative tightening and bond sales run the risk of triggering renewed turmoil in the gilts market," he said.

Newsletter

Related Articles

0:00
0:00
Close
Trump Administration Launches “TrumpRx” Plan to Enable Direct Drug Sales at Deep Discounts
Trump Announces Intention to Impose 100 Percent Tariff on Foreign-Made Films
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Singapore and Hong Kong Vie to Dominate Asia’s Rising Gold Trade
Trump Organization Teams with Saudi Developer on $1 Billion Trump Plaza in Jeddah
Manhattan Sees Surge in Office-to-Housing Conversions, Highest Since 2008
Switzerland and U.S. Issue Joint Assurance Against Currency Manipulation
Electronic Arts to Be Taken Private in Historic $55 Billion Buyout
Thomas Jacob Sanford Named as Suspect in Deadly Michigan Church Shooting and Arson
Russian Research Vessel 'Yantar' Tracked Mapping Europe’s Subsea Cables, Raising Security Alarms
New York Man Arrested After On-Air Confession to 2017 Parents’ Murders
U.S. Defense Chief Orders Sudden Summit of Hundreds of Generals and Admirals
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
Trump Claims FBI Planted 274 Agents at Capitol Riot, Citing Unverified Reports
India: Internet Suspended in Bareilly Amid Communal Clashes Between Muslims and Hindus
Supreme Court Extends Freeze on Nearly $5 Billion in U.S. Foreign Aid at Trump’s Request
Archaeologists Recover Statues and Temples from 2,000-Year-Old Sunken City off Alexandria
China Deploys 2,000 Workers to Spain to Build Major EV Battery Factory, Raising European Dependence
Speed Takes Over: How Drive-Through Coffee Chains Are Rewriting U.S. Coffee Culture
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Ringo Starr Champions Enduring Beatles Legacy While Debuting Las Vegas Art Show
Private Equity’s Fundraising Surge Triggers Concern of European Market Shake-Out
Colombian President Petro Vows to Mobilize Volunteers for Gaza and Joins List of Fighters
FBI Removes Agents Who Kneeled at 2020 Protest, Citing Breach of Professional Conduct
Trump Alleges ‘Triple Sabotage’ at United Nations After Escalator and Teleprompter Failures
Shock in France: 5 Years in Prison for Former President Nicolas Sarkozy
Tokyo’s Jimbōchō Named World’s Coolest Neighbourhood for 2025
European Officials Fear Trump May Shift Blame for Ukraine War onto EU
BNP Paribas Abandons Ban on 'Controversial Weapons' Financing Amid Europe’s Defence Push
Typhoon Ragasa Leaves Trail of Destruction Across East Asia Before Making Landfall in China
The Personality Rights Challenge in India’s AI Era
Big Banks Rebuild in Hong Kong as Deal Volume Surges
Italy Considers Freezing Retirement Age at 67 to Avert Scheduled Hike
Italian City to Impose Tax on Visiting Dogs Starting in 2026
Arnault Denounces Proposed Wealth Tax as Threat to French Economy
Study Finds No Safe Level of Alcohol for Dementia Risk
Denmark Investigates Drone Incursion, Does Not Rule Out Russian Involvement
Lilly CEO Warns UK Is ‘Worst Country in Europe’ for Drug Prices, Pulls Back Investment
Nigel Farage Emerges as Central Force in British Politics with Reform UK Surge
Disney Reinstates ‘Jimmy Kimmel Live!’ after Six-Day Suspension over Charlie Kirk Comments
U.S. Prosecutors Move to Break Up Google’s Advertising Monopoly
Nvidia Pledges Up to $100 Billion Investment in OpenAI to Power Massive AI Data Center Build-Out
U.S. Signals ‘Large and Forceful’ Support for Argentina Amid Market Turmoil
Nvidia and Abu Dhabi’s TII Launch First AI-&-Robotics Lab in the Middle East
Vietnam Faces Up to $25 Billion Export Loss as U.S. Tariffs Bite
Europe Signals Stronger Support for Taiwan at Major Taipei Defence Show
Indonesia Court Upholds Military Law Amid Concerns Over Expanded Civilian Role
Larry Ellison, Michael Dell and Rupert Murdoch Join Trump-Backed Bid to Take Over TikTok
Trump and Musk Reunite Publicly for First Time Since Fallout at Kirk Memorial
Vietnam Closes 86 Million Untouched Bank Accounts Over Biometric ID Rules
×