Brown Brothers Harriman expects a Bank of England rate increase next month after U.K. inflation rose to 3.5%, while saying swaps imply more tightening over 12 months than the Bank is likely to deliver.
Annual consumer price index (CPI) inflation stood at 3.5% in September, the Office for National Statistics (ONS) reported, following 3.1% in August. The September rate was the highest since October 2025; monthly CPI rose 0.4%.
Transport exerted the biggest upward pressure on the annual reading, with motor fuel at the center of that move. Fuel prices were 29.8% higher than a year earlier, compared with a 23.0% annual increase in August. Core CPI inflation rose to 2.8% from 2.6%, while CPI services inflation increased to 3.7% from 3.4%.
Elias Haddad, vice president and global head of markets strategy at Brown Brothers Harriman, expects a 25-basis-point increase in Bank Rate to 4% on Nov. 5. The Bank of England's Monetary Policy Committee voted 6-3 in September to hold the rate at 3.75%; three members favored a quarter-point increase. Haddad also said the pound gained against the U.S. dollar and euro after the figures.
BBH said swaps pricing indicates 113 basis points of tightening over the next 12 months, more than it expects the Bank to deliver. That period includes the Nov. 5 meeting, so the figure is not a tally of rate increases after that decision. The Bank's September minutes indicated policymakers considered elevated risk premia a potentially material reason for the curve's upward tilt beyond the near term.
The Bank targets CPI inflation at 2%. In September, it said energy prices linked to conflict in the Middle East had raised inflation risks, but it had seen little evidence that the shock was materially affecting broader wage and price setting. It also said higher lending rates faced by households and businesses would help restrain inflation.
HM Treasury has set the U.K. Budget for Oct. 28. The Bank's next rate decision is scheduled for Nov. 5, and the ONS plans its next consumer inflation release for Nov. 18.
