---
title: "City economists say markets have got Bank of England rate path wrong"
url: https://www.nsfw.info/city-economists-bank-of-england-rate-path-wrong/
published: 2026-10-25T12:30:48+00:00
modified: 2026-10-25T12:30:48+00:00
author: "Chief Editor"
categories: ["Money"]
image: https://www.nsfw.info/wp-content/uploads/2026/10/city-economists-bank-of-england-rate-path-wrong-1024x572.webp
summary: "Major banks including Deutsche Bank, ING and Oxford Economics say financial markets are wrong to price in four Bank of England rate hikes, with a peak of 4.25%"
publisher: NSFW (https://www.nsfw.info)
---

# City economists say markets have got Bank of England rate path wrong

**In brief:** City economists are pushing back against financial market predictions that the Bank of England will raise interest rates to 4.75% or even 5% by next summer. Several major institutions, including Deutsche Bank, Morgan Stanley and Oxford Economics, believe the tightening cycle will be far more modest, with potential rate cuts possible by the end of 2027.

## What the markets are pricing in

According to the Guardian, financial markets currently expect the Bank of England to raise its base rate at least four times over the next year, lifting it from its current level of 3.75% to 4.75% by the end of July 2027, and potentially to 5% by December 2027. These expectations are derived from the prices of financial instruments including derivatives known as “swaps”, which traders use to signal where they believe interest rates are heading.

The Bank of England is widely expected to raise rates to 4% at its next meeting on 5 November, following UK inflation rising further above its target in September to 3.5%. That much, at least, appears settled. It is what comes after that is dividing opinion.

## Why the experts disagree with the markets

James Smith, a developed markets economist at Dutch bank ING, was blunt in his assessment. “If you look at the swaps market, and you look at what’s priced in for the Bank of England, you’ve got four rate hikes and then no cuts ever. And I think you’d be hard-pressed to find anybody that really agrees with that,” he told a briefing in the City last week, as reported by the Guardian.

Smith believes the Bank could be “sounding the all clear” by next spring, and cutting rates again by the end of next year. He attributes the elevated market expectations partly to the correlation between oil prices and rate expectations since the Iran war began, noting that traders have been reluctant to bet against the market while energy supply remains uncertain. “It can get pretty painful, so a lot of traders are quite reluctant to take this risk until there’s greater certainty about energy supply and the extent of inflation this winter,” he said.

Sanjay Raja, chief UK economist at Deutsche Bank, is similarly sceptical. “I do not believe that any mainstream forecaster thinks the Bank of England will hike to 5% by the end of next year with the information set we have today,” he told the Guardian. Deutsche Bank’s base case is for the bank rate to reach 4.25% by February 2027 and then hold there until the end of 2027. Raja has also calculated that much of the market pricing reflects “baked-in risk premia” rather than genuine rate expectations, estimating that once stripped out, only around half a percentage point of hikes is actually anticipated.

Oxford Economics forecasts rate rises of a quarter of a percentage point at both the November and February meetings, taking the bank rate to 4.25%, which it describes as “significantly below the peak in money market expectations.” Morgan Stanley’s base case mirrors this, with rises in November and February followed by rates on hold, though it flags that a larger-than-expected increase in the national living wage, if recommended by the Low Pay Commission, could add further pressure.

Even Huw Pill, the Bank of England’s own hawkish chief economist, has poured cold water on the market projections. The Guardian reports that he told an International Monetary Fund meeting in Bangkok this month that he was sceptical the Bank would need to raise rates four times over the next year.

## What this means for Jersey

For islanders in Jersey, interest rate movements are anything but abstract. Mortgage holders on variable or tracker rates have already felt the squeeze as rates have climbed from historic lows, and anyone approaching a fixed-rate renewal in the coming months will be watching the Bank of England’s decisions closely. If the City economists are right and the peak is closer to 4.25% than 5%, that would be welcome news for household budgets already under pressure from elevated energy costs and food prices.

Jersey’s property market, which has shown some signs of cooling after years of sharp price growth, is also sensitive to borrowing costs. A less aggressive rate path than markets currently suggest could provide some support to buyers and sellers alike, though the picture remains uncertain while energy prices stay volatile.

For those with savings, the calculus runs the other way. Higher rates for longer benefit depositors, and any earlier-than-expected pivot to cuts would reduce returns on cash. The key message from the experts is that the situation remains fluid, and that market pricing, for now, may be telling a more alarming story than the underlying data justifies.

## The NSFW Perspective

There is something almost comforting about watching the world’s most sophisticated financial minds disagree quite so publicly about what happens next. Markets say four hikes and no cuts, ever. The economists say calm down. The Bank’s own hawk says the markets are running too hot. And somewhere in the middle, Jersey mortgage holders are just hoping someone, anyone, gets it right.

What is clear is that the era of near-zero interest rates, which many homeowners came to treat as a permanent feature of the landscape rather than a historical anomaly, is not coming back any time soon. Whether rates peak at 4.25% or push towards 5% may feel like a technical distinction, but for families renewing mortgages or businesses managing debt, the difference is very real. The sensible course, as ever, is to plan for uncertainty rather than bet on any single forecast, however confidently it is delivered from a City briefing room.

*Source: [theguardian.com](https://www.theguardian.com/business/2026/oct/25/interest-rates-bank-of-england-rises-summer-2027)*