BoE Holds but Leans Toward Hiking, Overhauls QTGLOBAL ECONOMICS

Key arguments

• The decision tone was hawkish: four hold voters, including Governor Bailey, flagged that the longer the Middle East conflict persists, the more likely tighter policy becomes via second-round price effects — which have not yet materialized.
• Scotiabank's base case is a 25bp November hike followed by another in Q1-27, contingent on energy prices and conflict outlook not improving materially; back-to-back hikes are seen as unlikely given weak domestic demand and labour markets.
• The QT overhaul — pausing all sales until April and ending long-dated sales, with £20bn of sales kept off public markets — drove a curve rally, with 30s down 12bps and 10s down 7bps.
• Markets price ~40bps of hikes by year-end and ~100bps by mid-2027; the BoE notes members disagree on whether financial-condition tightening can substitute for raising Bank Rate.

Corresponding source evidence

1. • If energy prices and the outlook for the conflict in the Middle East do not improve significantly by the time of the November meeting, we think the BoE will hike by 25bps, followed by another rate increase in Q1 -27, with permutations of back -to- back or more hikes dependent on how risks evolve over the next few months.
2. • The BoE also announced a change to its gilts holdings plans, outlining a multi -year balance sheet runoff plan that includes pausing all bond sales until April and ending long -dated bond sales altogether which fed a strong rally in long -end U.K. rates.
3. The Bank of England (BoE) left its policy rate unchanged at 3.75% this morning, as universally expected by economists polled by Bloomberg and only minimal rate hike pricing in markets of around 3bps (10 –15% chance).