Five of the Bank of England's nine rate-setters have signalled another rise. Britain is following the Fed upwards.
Future Times4 min read
In 30 seconds
A week after its first hike since 2023, the Bank's own minutes show a majority leaning towards a second before Christmas. Traders have caught up, and now expect both central banks to tighten in December.
- Traders now see a December Bank of England hike as more likely than not, up from about one in five a week ago
- Five of nine MPC members have pointed to more tightening; the energy shock is the driver
- The Fed is expected to hike on 9 December, eight days before the Bank decides
What it means
- MarketsWith both central banks expected to tighten in December, neither currency gains a clear rate advantage.
- Stocks and sectorsHousebuilders, mortgage lenders and consumer-facing retailers are most exposed.
- BusinessFirms on fixed-price or hedged energy contracts face a cost step when those roll off, just as borrowing costs rise and…
- Politics and policyA second rise before Christmas would put the Bank's energy-driven tightening at the centre of the cost-of-living…
What to watch
- 12 NovUK third-quarter GDP on 12 November
- 9 DecThe Fed's decision on 9 December
- 17 DecThe Bank's on 17 December
The odds
Polymarket · live, 07:44 GMTBank of England raises rates in December
up 28 points over 7dfrom 42% a week ago67% when this was published
Signals to watch
- Brent crude back near $108 would strengthen the hawks.
- A sustained move below $95 would hand the four doves their argument.
Now · 70%
Think the market's wrong? Add your forecast and see who's closer.
- Bank of England decision in December: No change28%down 27 points
- Fed Decision in December: 25 bps increase87%up 10 points
- Fed Decision in January: 25 bps increase58%up 39 points
When the Bank of England raised Bank Rate to 4% on 5 November, its first increase since the summer of 2023, Governor Andrew Bailey asked the country not to read too much into it. "Today's increase shouldn't be seen as the first in an inevitable long sequence of hikes," he said. Read the minutes, though, and a majority of his committee had already said otherwise.
Five of the nine members of the Monetary Policy Committee, Bailey among them, used their individual statements to point towards further tightening. A week later, traders are listening to the votes. Polymarket traders now put the chance of a second quarter-point rise at the 17 December meeting at 67% (as of 12 November), up from about 22% a week earlier. The Federal Reserve, eight days earlier, is priced for a hike too. Britain looks set to follow America into a tightening cycle that neither central bank will yet call by that name.
A committee more hawkish than its governor
The minutes are unusually explicit. Catherine Mann wanted a half-point rise in November and warned of "non-linear" inflation risks. Huw Pill, the chief economist, wrote that "a single 25-basis point hike is unlikely to be sufficient" and that more tightening was likely "including in the near term". Deputy Governor Clare Lombardelli said that, absent weaker inflation pressure, "there is likely to be a case for a further increase in rates in the near term". Megan Greene wrote that "additional hikes will likely be required going forward". Bailey himself said he could "see the argument for a further increase in rates" without news that softened the inflation risks.
The cause is energy, not a domestic boom. Brent crude and UK gas averaged $108 a barrel and 216 pence a therm in the 15 working days to 27 October, 38% and 81% above July's levels. Inflation reached 3.5% in September, and the Bank now expects it to rise to about 5% by the middle of 2027. Higher utility bills alone will add about 0.4 percentage points to inflation in January.
Growth has helped the hawks: the Bank judged activity data "generally stronger than expected". Third-quarter GDP figures, due from the Office for National Statistics at 7am on 12 November, are the next test; the consensus forecast was 0.7%.
How the week turned
Three things moved the price. First, the minutes: on 5 November traders put the chance of a December hike at about one in four. Second, Lombardelli repeated her near-term case at the Bank of England Watchers' Conference on 10 November, though she told the Guardian she would not rule out a December rise while adding: "Equally, I don't have enough information just yet."
Third, America. On the same day, the Bureau of Labor Statistics reported that US consumer prices rose 0.4% in October, with core prices up 0.3% and energy up 0.7%. Treasury yields rose, and the 10-year gilt yield climbed from about 5.10% to above 5.20%. Money markets moved from pricing about 13 basis points of December tightening before Lombardelli spoke to about 17 by midweek, roughly a two-in-three chance of a quarter-point move. Polymarket traders arrived at the same place.
The Fed sets the pace
The US case is firmer. The Fed held its target range at 3.75-4% on 28 October, with Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting in favour of a rise. Traders give a December Fed hike 87%, and see a further rise in January at 54%, up 35 points in a week, and one in March at 59%.
The two banks now sit at almost the same level: 4% in London, 3.75-4% in Washington. Read together, the Fed markets imply further hikes into the spring. Nothing is priced for the Bank beyond December, but Bailey's own sketch is one further rise followed by "a more conditional approach". Traders give 59% to UK inflation for the year to December landing between 3.5% and 3.9%, well short of the 5% peak the Bank expects next summer. The pressure on the Bank grows in 2027.
Why the doves could still win
Four members did not sign up to more. Alan Taylor called November a "one-for-now" insurance hike and insisted "this is not the start of a hiking cycle", warning that "the next move could be up, down, or sideways". Sarah Breeden judged current financial conditions "sufficient", and Swati Dhingra set a high bar for keeping rates up. Energy is already pulling their way: Bailey noted that Brent had fallen about 15% to $95 in the 48 hours before the decision, a level the Bank had not assumed until May 2027.
Lombardelli also described a "low-hire, low-fire" labour market. A weak GDP print, a lasting fall in oil or a ceasefire could peel off one hawk and push the next move to February, the timing Lloyds already favours.
What it means for markets, business and politics
Markets With both central banks expected to tighten in December, neither currency gains a clear rate advantage. Traders give only 23% to sterling falling to $1.25 this year, down 10 points in a week. Ten-year gilt yields above 5% keep government borrowing costs high.
Stocks and sectors Housebuilders, mortgage lenders and consumer-facing retailers are most exposed. Two-year mortgage rates have already risen nearly 50 basis points since September, and the Bank notes new mortgage approvals are falling.
Business Firms on fixed-price or hedged energy contracts face a cost step when those roll off, just as borrowing costs rise and margins are already squeezed.
Politics and policy A second rise before Christmas would put the Bank's energy-driven tightening at the centre of the cost-of-living debate, just as household energy bills climb in January.
What to watch
UK third-quarter GDP on 12 November; the Fed's decision on 9 December; and the Bank's on 17 December. Brent crude back near $108 would strengthen the hawks; a sustained move below $95 would hand the four doves their argument.
Bailey says the path is not pre-set. His committee's own words suggest it already points one way.