BoE Set to Hike to 4% While BOJ Locks In December Move Amid Neutral-Rate Uncertainty

The Bank of England is widely expected to raise its benchmark rate by 25 basis points to 4.00% this week, with markets pricing the move at 94.4% probability. The Reserve Bank of Australia is similarly poised to lift rates from 4.60% to 4.85%, with an 81.2% probability priced in. Because both hikes are so heavily anticipated, analysts say the market-moving moment will be the forward guidance and new forecasts rather than the decisions themselves.

Beyond the immediate hike, Goldman Sachs expects the BoE to deliver one more 25 basis point increase in February 2027, bringing the peak rate to 4.25%, and then hold at that level until mid-2027 before cutting quarterly through the end of that year to a terminal rate of 3.25%. Bloomberg and the Financial Times both noted the BoE is actively reconsidering what a "new normal" for interest rates looks like, with the institution itself signaling uncertainty about whether current levels are sufficiently restrictive.

In Japan, Reuters reported that the Bank of Japan has effectively locked in a December rate hike, but uncertainty about where the neutral rate sits is clouding the longer-term outlook. The BOJ noted that underlying inflation has moved toward 2% and is gradually becoming embedded at that level, and that real interest rates have risen recently, particularly at the long and super-long ends of the yield curve. The BOJ said it is closely monitoring asset prices including equities and foreign exchange when assessing financial conditions, while Fitch Ratings said rising rates stand to improve earnings at Japan's major banks.

For currency markets, the heavily priced BoE and RBA moves have left GBP/AUD trapped in a six-month range between 1.8533 and 1.9360, with traders waiting for fresh guidance on the path beyond November before the cross can break decisively in either direction.