BofA Drops BoE 2026 Rate Hike Forecast, Maintains 3.75% as Base Case
Taylor Wilson
BofA Global Research on Thursday scrapped its forecast for BOE rate hikes in 2026, now expecting rates to hold at 3.75% — falling oil prices and below-forecast inflation are driving a material shift in how major banks read the UK rate path.
What exactly did BofA change?
BofA previously forecast the BOE would hike twice in 2026. That call is now withdrawn; the base case is rates unchanged at 3.75% this year.
The 2027 outlook also narrowed sharply: from three cuts down to one 25-bp cut in November.
BofA's own language: "We no longer have sufficient conviction to include hikes in our base case." This means → they haven't ruled out a hike entirely, but the odds no longer justify a headline call.
Why the sudden reversal?
Three factors stacked up: falling energy prices, easing inflation pressure, and a softening economic backdrop.
UK May CPI held at 2.8% year-on-year, matching April, below both economist and BOE expectations — a 13-month low.
The US-Iran ceasefire deal has cooled expectations of sustained oil-driven inflation. In plain terms = the biggest fuel for rate hikes — energy price surges — is burning out.
Does the market agree?
Not entirely. LSEG data shows traders still price in at least one 25-bp hike from the BOE this year.
This means → a gap has opened between the institutional call and market pricing: BofA says hold, traders say hike at least once.
That gap is the key test for the second half — if inflation data or oil prices turn volatile again, markets could reprice quickly.
Has the risk disappeared entirely?
BofA itself says "the balance of risks still tilts toward a hike this year" — escalation risk or a strong second-round inflation effect could trigger tightening.
UK gilts rallied this week, with the 10-year yield falling to around 4.7%, the lowest since mid-March. This reflects the bond market already pricing in lower hike odds.
In plain terms = BofA shifted its call, gilts are moving with it, but traders haven't fully abandoned the hike bet — three camps, three views, and only incoming data will settle it.
Content is for reference only, not financial advice.