UBS expects BoE to hold rates at 4% — will the central bank deliver?

UBS analysts anticipate the Bank of England will maintain interest rates at 4% during its November 6 meeting, marking a second consecutive pause despite recent dovish economic data indicating labor market easing and a downside inflation surprise. While markets price in some cuts, UBS projects the first rate reduction in February 2026, with a terminal rate of 3.25% by July 2026, though a December 2025 cut is gaining traction. The BoE is also expected to revise down 2025/2026 inflation forecasts and project stronger 2025 growth, contributing to a bearish GBP/USD outlook against the euro, targeting 0.8800.

Analysis

UBS analysts anticipate the Bank of England (BoE) will maintain its interest rate at 4% during the upcoming November 6 meeting, marking the second consecutive pause. This decision is expected despite recent "dovish" economic signals, including easing labor market conditions and a downside surprise in September inflation. The Monetary Policy Committee (MPC) likely aims to await the Autumn Budget on November 26 and the next inflation print on November 19 before adjusting policy.

UBS projects the first rate cut will occur in February 2026, followed by additional 25 basis point reductions in April and July 2026, leading to a terminal rate of 3.25%. This contrasts with current market pricing, which indicates approximately 7.3 basis points of cuts expected by December and increased chances of a December 2025 cut, with cumulative cuts of 16.5 basis points priced in by then.

The BoE's updated projections are expected to show lower inflation forecasts for 2025 and 2026, specifically a 0.2 percentage point reduction to 3.4% and 2.3% respectively, alongside stronger growth in 2025. Consequently, UBS maintains a bearish outlook for GBP/USD against the euro, targeting 0.8800 by year-end, with further currency weakness possible if the BoE adopts a more dovish stance.

Key Decisions for Investors

• Investors should closely monitor the BoE's November 6 decision and subsequent forward guidance for confirmation of the expected rate hold and any shifts in policy rhetoric, particularly regarding the timing of future cuts
• Evaluate exposure to GBP/USD, as UBS maintains a bearish outlook targeting 0.8800 against the euro, with potential for further depreciation if the BoE signals a more dovish stance
• Reassess fixed income strategies, considering the notable divergence between UBS's longer-term rate cut forecast (February 2026) and market expectations for earlier reductions, including a potential December 2025 cut