Barclays backs November BoE hike, warns Middle East conflict could spur more
TLT•Barclays sees November BoE hike after steady rates decision
Barclays expects a 25-basis-point hike from the Bank of England in November after policymakers kept rates steady, citing a "dramatically changed" medium-term energy outlook and warning that a prolonged Middle East conflict could bring further tightening.
Barclays joins J.P. Morgan, which also expects hikes in November 2026 and February 2027 and has warned that the Middle East crisis could bring further rate increases. Previously, J.P. Morgan expected BoE to hike rates once in November 2026 and then reduce rates twice in 2027.
The BoE kept interest rates on hold at 3.75% on Thursday as anticipated, but also predicted that inflation could top 4% early next year. The meeting's minutes also struck a more hawkish tone, signalling the central bank could join those of Europe and the US in raising borrowing costs.
Energy conflict and inflation risks keep rate outlook fluid
Saudi Arabia and Yemen's Iran-backed Houthis exchanged fresh strikes across their border on Thursday, expanding the Middle East war front, while the US and Iran have held no peace talks since an interim agreement reached in June collapsed within weeks.
Strategists led by Jack Meaning at Barclays, in their note on Thursday, added they saw scope for an additional quarter-point increase in February 2027 if the Middle East conflict continued.
Markets are pricing in a 63% chance of a BoE hike in November, with another increase expected in December, according to LSEG data.
The Bank of Japan also raised rates to a 31-year high on Friday and signalled its readiness to keep pushing up borrowing costs, as the impact of the spreading Middle East conflict adds to inflation pressures around the world.
However, Goldman Sachs, which also expects a November hike, noted that softer economic data or a decline in energy prices could still keep policymakers on hold.
Morgan Stanley argued that rates were likely to remain unchanged for an extended period, though commodity-price pressures failing to ease could lead to rate hikes in November and February.
