HSBC Predicts Bank Of England Rate Hold<\/p>\n
HSBC predicts that the Bank of England (BOE) will not alter its rates until April 2026. It had earlier expected the BOE to initiate rate cuts in November and again in February next year. <\/p>\n
Market expectations around the BOE have remained steady, with traders not foreseeing rate cuts in the remaining months of this year. The next projected rate cut is anticipated for February 2026, with the first significant rate change expected in March 2024.<\/p>\n
Inflation risks continue to play an important role in evaluating the fiscal landscape of the UK economy. The forthcoming November budget will also be a key consideration in this assessment.<\/p>\n
The outlook for UK interest rates has shifted, with the Bank of England now expected to keep rates on hold until at least April 2026. This is a significant delay compared to previous expectations of cuts starting late this year. We must therefore unwind positions that were betting on rate reductions in the coming months.<\/p>\n
This policy pause is driven by inflation that remains stubbornly above the 2% target, with the most recent data from August 2025 showing a CPI of 2.8%. More importantly, wage growth continues to be a concern, running at an annualized rate of 4.5%, which convinces us that the Bank will remain cautious. This contrasts with the situation back in late 2023, when markets were eagerly anticipating a swift series of rate cuts.<\/p>\n
Impact on Sterling and Interest Rate Futures<\/p>\n
For those trading sterling interest rate futures, this means contracts for December 2025 and March 2026 are likely to see their implied yields stay firm or rise further. Consequently, we should consider paying the fixed rate on short-term swaps to align with this “higher-for-longer” reality. The UK’s slow economic growth, which saw a meager 0.1% expansion in the second quarter of 2025, seems insufficient to force the Bank’s hand just yet.<\/p>\n
This divergence with other central banks, some of which have already begun easing, should offer support for the pound. A stronger sterling, particularly against the euro and dollar, is a likely outcome in the medium term. The upcoming November budget is now a key event, and we should anticipate increased volatility around that date, making options strategies attractive to hedge against any fiscal surprises.<\/p>\n
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