London Daily

Focus on the big picture.
Monday, Jan 19, 2026

Bank of England set to raise rates again as inflation heads for 10%

Bank of England set to raise rates again as inflation heads for 10%

The Bank of England looks set to raise interest rates next week for the fifth time since December, its steepest run of rate hikes in 25 years, and is likely to keep going in the coming months as inflation heads for double digits.

While Britain is forecast to have the weakest economy in 2023 among the world's big, rich nations, investors and most economists are predicting a quarter-point rate hike by the BoE next Thursday.

That would take Bank Rate to 1.25%, its highest level since January 2009, when Britain's economy was holed by the global financial crisis.

While historically low, expectations for British borrowing costs over the next couple of years have risen sharply recently and they jumped again this week when the European Central Bank flagged rate hikes at its next two meetings, including a possible half percentage-point rise in September.

Investors are betting on the BoE's Monetary Policy Committee doubling Bank Rate to 2% by September and hitting 3% by March next year. Some economists are ramping up their forecasts too.

Sanjay Raja at Deutsche Bank said on Friday he now expected rates to peak at 2.5%, up from a previous call of 1.75%, starting with a 0.25% increase next week.

"We don't expect a unanimous decision, however. Instead, risks are skewed to a more split MPC, with at least three members on the committee looking for a bigger 50 basis-point move," he said in a note to clients. "There's also a possibility of an even messier vote, with one or two members looking for no change to the Bank Rate."

FIRST MOVER


The BoE was the first big central bank to start reversing its pandemic stimulus in December, before the U.S. Federal Reserve and others began to move to head off the jump in inflation caused by the reopening of the world economy after the coronavirus pandemic and then Russia's invasion of Ukraine.

But that did not stop British inflation hitting a 4-year high of 9% in April, almost five times the BoE's 2% target.

The BoE thinks inflation is set to surpass 10% later in 2022, when regulated energy tariffs are due to jump by a further 40%, and consumers have already reined in their spending while there are signs of a slowdown in the housing market.

Governor Andrew Bailey said in April the BoE was walking a very tight line between tackling the surge in prices and causing a recession. But with wage deals starting to climb, the BoE's priority is to show it means business on fighting inflation.

A BoE survey published on Friday showed the public's expectations for inflation in the year ahead at 4.6%, the highest in records going back to 1999.

Since the central bank's last meeting in May, finance minister Rishi Sunak has given more money to households to soften the cost-of-living squeeze, reducing the risks of a recession and potentially increasing inflation pressures.

Billions of pounds of further support are expected from Sunak later this year as Prime Minister Boris Johnson fights for his political life after 41% of Conservative Party lawmakers voted to oust him on Monday.
There is also the risk of an escalation in a post-Brexit trade dispute between Britain and the European Union which could also fan inflation.

Paul Dales, an economist with Capital Economics, said investors were under-estimating the chance of a half-point rate hike by the BoE next week, especially if economic growth and labour market data due on Monday and Tuesday are strong.

"Either way, we think it will be very close with the MPC either voting 5-4 for a 50 basis point hike or 5-4 for a 25 basis point hike," he said in a note to clients.

Markets on Friday were pricing in a 30% chance of a half-point move by the BoE on June 16.

Newsletter

Related Articles

0:00
0:00
Close
High-Speed Train Collision in Southern Spain Kills at Least Twenty-One and Injures Scores
Meghan Markle May Return to the U.K. This Summer as Security Review Advances
Trump’s Greenland Tariff Threat Sparks EU Response and Risks Deep Transatlantic Rift
Prince Harry’s High Court Battle With Daily Mail Publisher Begins in London
Trump’s Tariff Escalation Presents Complex Challenges for the UK Economy
UK Prime Minister Starmer Rebukes Trump’s Greenland Tariff Strategy as Transatlantic Tensions Rise
Prince Harry’s Last Press Case in UK Court Signals Potential Turning Point in Media and Royal Relations
OpenAI to Begin Advertising in ChatGPT in Strategic Shift to New Revenue Model
GDP Growth Remains the Most Telling Barometer of Britain’s Economic Health
Prince William and Kate Middleton Stay Away as Prince Harry Visits London Amid Lingering Rift
Britain Braces for Colder Weather and Snow Risk as Temperatures Set to Plunge
Mass Protests Erupt as UK Nears Decision on China’s ‘Mega Embassy’ in London
Prince Harry to Return to UK to Testify in High-Profile Media Trial Against Associated Newspapers
Keir Starmer Rejects Trump’s Greenland Tariff Threat as ‘Completely Wrong’
Trump to hit Europe with 10% tariffs until Greenland deal is agreed
Prince Harry Returns to UK High Court as Final Privacy Trial Against Daily Mail Publisher Begins
Britain Confronts a Billion-Pound Wind Energy Paradox Amid Grid Constraints
The graduate 'jobpocalypse': Entry-level jobs are not shrinking. They are disappearing.
Cybercrime, Inc.: When Crime Becomes an Economy. How the World Accidentally Built a Twenty-Trillion-Dollar Criminal Economy
The Return of the Hands: Why the AI Age Is Rewriting the Meaning of “Real Work”
UK PM Kier Scammer Ridicules Tories With "Kamasutra"
Strategic Restraint, Credible Force, and the Discipline of Power
United Kingdom and Norway Endorse NATO’s ‘Arctic Sentry’ Mission Including Greenland
Woman Claiming to Be Freddie Mercury’s Secret Daughter Dies at Forty-Eight After Rare Cancer Battle
UK Launches First-Ever ‘Town of Culture’ Competition to Celebrate Local Stories and Boost Communities
Planned Sale of Shell and Exxon’s UK Gas Assets to Viaro Energy Collapses Amid Regulatory and Market Hurdles
UK Intensifies Arctic Security Engagement as Trump’s Greenland Rhetoric Fuels Allied Concern
Meghan Markle Could Return to the UK for the First Time in Nearly Four Years If Security Is Secured
Meghan Markle Likely to Return to UK Only if Harry Secures Official Security Cover
UAE Restricts Funding for Emiratis to Study in UK Amid Fears Over Muslim Brotherhood Influence
EU Seeks ‘Farage Clause’ in Brexit Reset Talks to Safeguard Long-Term Agreement Stability
Starmer’s Push to Rally Support for Action Against Elon Musk’s X Faces Setback as Canada Shuns Ban
UK Free School Meals Expansion Faces Political and Budgetary Delays
EU Seeks ‘Farage Clause’ in Brexit Reset Talks With Britain
Germany Hit by Major Airport Strikes Disrupting European Travel
Prince Harry Seeks King Charles’ Support to Open Invictus Games on UK Return
Washington Holds Back as Britain and France Signal Willingness to Deploy Troops in Postwar Ukraine
Elon Musk Accuses UK Government of Suppressing Free Speech as X Faces Potential Ban Over AI-Generated Content
Russia Deploys Hypersonic Missile in Strike on Ukraine
OpenAI and SoftBank Commit One Billion Dollars to Energy and Data Centre Supplier
UK Prime Minister Starmer Reaffirms Support for Danish Sovereignty Over Greenland Amid U.S. Pressure
UK Support Bolsters U.S. Seizure of Russian-Flagged Tanker Marinera in Atlantic Strike on Sanctions Evasion
The Claim That Maduro’s Capture and Trial Violate International Law Is Either Legally Illiterate—or Deliberately Deceptive
UK Data Watchdog Probes Elon Musk’s X Over AI-Generated Grok Images Amid Surge in Non-Consensual Outputs
Prince Harry to Return to UK for Court Hearing Without Plans to Meet King Charles III
UK Confirms Support for US Seizure of Russian-Flagged Oil Tanker in North Atlantic
Béla Tarr, Visionary Hungarian Filmmaker, Dies at Seventy After Long Illness
UK and France Pledge Military Hubs Across Ukraine in Post-Ceasefire Security Plan
Prince Harry Poised to Regain UK Security Cover, Clearing Way for Family Visits
UK Junk Food Advertising Ban Faces Major Loophole Allowing Brand-Only Promotions
×