The Bank of England raised rates in a unanimous vote, a result that contrasted with expectations of dissent and leaned hawkish. One member, Mann, sought a 50 basis point move, sharpening the focus on the pace and extent of tightening rather than whether further increases are coming. Governor Bailey suggested the latest rise is unlikely to be the last if the Iran war continues, while also pushing back on the idea of an extended run of hikes; Greene, Lombardelli and Pill pointed to additional tightening, and another increase in February is in view unless conditions change.
Inflation Outlook And Policy Pressure
The Bank expects inflation to peak at 5% in 2027, keeping pressure on policy decisions. Market pricing implies a further 75 basis points of tightening by late 2027, but the Bank sees limited evidence of second-round effects, while unemployment remains elevated and gilt yields are high.
Market And Currency Reactions
Sterling’s reaction was subdued, consistent with hawkish expectations already embedded, leaving the post-February path tied to developments in Iran.
