BoE rate peak of 4.25% ‘will not be enough’, NIESR says in Autumn 2026 outlook

The National Institute of Economic and Social Research (NIESR) has stated in its Autumn 2026 outlook that a Bank of England policy rate peak of 4.25% will not be sufficient to bring inflation fully back to target. The assessment implies that the market-implied terminal rate may be too low, pointing to the risk that policy must stay tighter for longer or rise further than currently priced. The transmission runs primarily through the expected path of short rates: a higher-for-longer repricing lifts sterling-denominated yields across the gilt curve and widens the rate differential that supports the pound against lower-yielding peers. Gilts, particularly the front end and two-year sector most sensitive to Bank Rate expectations, and sterling itself are the most directly exposed, while rate-sensitive UK equities such as housebuilders and highly leveraged mid-caps face pressure from higher discount rates and mortgage costs. The next concrete catalyst for traders is the UK CPI release and the accompanying Bank of England Monetary Policy Report, where any upside surprise to services inflation or wage growth would test whether the NIESR view is being priced into the terminal rate.

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