Interest rates unlikely to reach 4.75% by next summer, say City economists

AI desk brief

City economists say markets are overpricing the Bank of England’s tightening path, with swaps implying the bank rate could rise from 3.75% to 4.75% by July and possibly 5% by end-2027, versus most economists calling for a peak closer to 4.25%-4.25%/4.25% depending on the house view. The article frames the gap as largely risk premia tied to oil and Middle East energy shocks rather than a clean four-to-five hike base case, which matters for metals because a less aggressive BoE path would be supportive for gold through a lower-rate/real-yield backdrop.

BoE is still widely expected to hike to 4% on 5 November after UK inflation rose to 3.5%, but ING, Deutsche Bank, Goldman Sachs, Morgan Stanley and Oxford Economics all see a shallower path than market pricing. Huw Pill also signalled skepticism that four hikes are needed, underscoring that the market’s terminal-rate assumptions may be too hawkish if energy prices stabilize.