Markets price a 25bp Bank of England move to 4.00% on Thursday, the first hike since August 2023, driven by elevated energy prices.
MoneyTurkey Currencies Desk | 2 November 2026
Key points
- Money markets fully price a 25bp BoE rate increase to 4.00% on Thursday, the first hike since August 2023.
- Sterling trades at $1.3417, supported by ING’s view that high energy prices leave the Bank no alternative but to act.
The Bank of England is set to raise its key rate by 25 basis points to 4.00% on Thursday, the first increase since August 2023. Markets have fully priced the move after energy prices climbed sharply on the Iran conflict, pushing inflation above 4% early next year from the current 3.5%. Sterling held steady at $1.3417 on Monday, supported by the view that the Bank has little choice but to act.
What happened
The Bank of England will announce its policy decision on Thursday. A 25bp hike to 4.00% is fully priced in by money markets, according to LSEG data cited by ING. The move would mark the first rate increase since August 2023, when the Bank paused after a series of cuts earlier in the year.
The pound was little changed on Monday at $1.3417 and 83.53 pence per euro. Reuters reported that the currency drifted as traders shifted focus from last week’s UK budget to the coming rate decision. The euro strengthened against the dollar, pushing the cross rate lower for sterling.
The Bank of Japan kept its policy rate unchanged at 1.25% on Friday and signalled further increases only if the economy and prices evolve in line with its projections. Japan’s Finance Minister Satsuki Katayama repeated on Monday that authorities remain ready to act against disorderly yen moves, but the yen drew little support from the warning.
What is driving the currency
Elevated energy prices are the main driver. Brent crude futures hit multi-month highs last week and stood at $108.37 a barrel on Monday, still far above pre-Iran war levels despite a 4.5% daily drop. ING economists said the worsening energy crisis has made it much harder for the Bank not to act, with inflation expected to rise above 4% early next year from 3.5% now.
Rate differentials remain wide. Other major central banks, including the European Central Bank and the Federal Reserve, have already hiked rates this year, while the BoE followed a wait-and-see approach until now. The Bank has added policy restriction by not cutting rates as much as markets once expected, ING noted, but the energy shock has shifted the balance toward an outright hike.
Fiscal and political factors also support sterling. ING cited upside economic surprises, UK fiscal policy heading in the right direction and warmer ties with the EU as additional tailwinds. Speculators still hold large short positions in sterling, which ING said could allow further outperformance if the rate-hike narrative holds.
Why it matters
The BoE’s move would bring UK policy rates in line with other major central banks that have already tightened this year. Markets are pricing four 25bp hikes by next September, a path ING described as extreme. Any signal from the Bank that it plans to pause after Thursday could trigger a reassessment of those bets.
For sterling, the key question is whether further gains require increasingly positive UK surprises, as OCBC warned. With substantial tightening already priced in, the pound’s resilience may depend on continued fiscal discipline and resilient growth into early 2027.
The yen remains under pressure despite the BoJ’s hawkish signals. Yield differentials stay wide because interest rates elsewhere remain well above Japan’s 1.25% level. Renewed intervention warnings from Tokyo have so far failed to lift the currency, leaving GBP/JPY supported by the BoE tightening narrative.
What to watch
- BoE statement language on further tightening after Thursday’s hike
- Brent crude reaction to any diplomatic progress on Iran
- Positioning data for sterling shorts
- BoJ quarterly outlook follow-up comments
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For information only. Not investment advice.
Sources
- FXStreet: https://www.fxstreet.com/news/british-pound-sterling-supported-by-boe-tightening-bets-ing-202611021244
- Yahoo Finance: https://finance.yahoo.com/economy/policy/articles/sterling-drifts-boe-rate-decision-120845801.html
- FXStreet: https://www.fxstreet.com/news/british-pound-edges-higher-against-japanese-yen-with-boe-decision-in-focus-202611021225
- Bloomberg: https://www.bloomberg.com/news/articles/2026-11-02/boe-to-raise-rates-for-first-time-since-2023-survey-shows
- WSJ: https://www.wsj.com/finance/currencies/asian-currencies-mixed-as-investors-await-u-s-economic-data-c0156350
- Reuters: https://www.reuters.com/world/uk/bank-england-poised-raise-rates-may-push-back-bets-more-2026-11-02/
- Morningstar: https://global.morningstar.com/en-gb/economy/will-bank-england-raise-interest-rates-4-this-week
- FT: https://www.ft.com/content/30405694-3487-4c41-b720-613bde9d2de1?syn-25a6b1a6=1
