Citigroup, Goldman forecast BoE rate hikes amid rising inflation

Citigroup and Goldman Forecast Bank of England Rate Hikes as Inflation Rises

Bank of England Rate Hike Predictions Amid Rising Inflation

By Kanishka Ajmera

Forecasts from Major Financial Institutions

Sept 14 (Reuters) - Citigroup joined Goldman Sachs on Monday in forecasting Bank of England rate hikes later this year, citing persistent inflation pressures that could require policymakers to keep tightening monetary policy.

Goldman Sachs Outlook

Goldman expects a quarter-percentage-point hike in November 2026, while Citigroup expects "one hike later this year and another in early 2027 – likely in November and February."

Citigroup's Revised Projections

Both brokerages had previously expected rates to remain unchanged throughout 2026.

Analyst Commentary

"Recent weeks have seen significant increases in wholesale energy prices, a larger rise in headline inflation than the Bank had expected, and strong growth data," Goldman Sachs analysts said in a note.

Factors Influencing Inflation and Rate Decisions

Energy Prices and Economic Growth

Rising energy prices have added to concerns about Britain's inflation outlook, with oil climbing above $100 a barrel due to renewed hostilities in the Middle East. [O/R]

Earlier this month, data showed Britain's economy expanded at its fastest annual pace in 18 months in July, supported by artificial intelligence and momentum from a strong first half.

Upcoming Bank of England Decisions

In line with consensus, Goldman expects the BoE to keep the bank rate unchanged at 3.75% at its September 17 meeting.

Citigroup said it expects a more hawkish message from the Bank of England this month.

Market Reactions and Global Policy Context

Expectations for Future Rate Cuts

Both brokerages expect the central bank to eventually shift to rate cuts, with each forecasting the easing cycle to begin by the end of 2027.

Traders price in 47 basis points of rate hikes by the Bank of England by year-end, LSEG data showed.

Global Central Bank Actions

Last week's rate hike by the European Central Bank, its second this year, has reinforced market focus on global monetary policy, with investors now awaiting interest rate decisions from the U.S. Federal Reserve and the Bank of Japan later this week.

(Reporting by Kanishka Ajmera in Bengaluru; Editing by Nivedita Bhattacharjee and Devika Syamnath)