BoE’s Rate Hike Is Almost Priced In. Sterling Needs More Than 25bp

The Bank of England is widely expected to raise interest rates by 25 basis points to 4.00% on November 5, its first hike since August 2023. But for the pound, the bigger test will be what comes after tonight’s decision.

Barclays, Danske Bank and Rabobank are among the institutions expecting a 25bp increase. Several also see another move in February 2027, potentially taking the rate to 4.25%, as higher energy costs threaten to keep inflation elevated.

However, not all the signals point to a sustained hawkish cycle. HSBC warns that a fully priced-in hike leaves limited room for further sterling gains. BNP Paribas also expects the BoE to avoid encouraging overly aggressive rate expectations.

Three Sterling Pairs to Watch

1. GBP/USD: A hawkish message could support the pound, but gains may be limited if the dollar remains firm. A cautious tone could trigger a pullback as traders scale back rate-hike bets.
2. EUR/GBP: This pair may offer a clearer read on sterling’s strength against the euro. More hawkish BoE guidance could push EUR/GBP lower; a dovish surprise could send it higher.
3. GBP/JPY: Higher UK yields may support the pound, although broader risk sentiment and Bank of Japan expectations will also influence the pair.

The key takeaway: A rate hike may already be in the price. Sterling’s next move will depend on whether the BoE leaves the door open to another increase in February — or signals that one move may be enough.