Central banks are turning hawkish as the Middle East energy shock complicates the last mile of disinflation.
Published research this week highlights a clear shift. The Bank of England's MPC voted 8-1 to raise Bank Rate 25bp to 4%, with the lone dissenter preferring a larger 50bp move. The committee flagged rising second-round inflation risks and said policy is not pre-set. Staff projections cited in the research see UK CPI near 5% by mid-2027, with Brent averaging around $108.
The Bank of Canada delivered its first hike since July 2023, lifting 25bp to 2.5%. Governor Macklem signaled further moves are possible but will be weighed meeting by meeting, with CPI expected near 3.5% by year-end. Norges Bank held at 4.5%, with Governor Bache saying rates will likely stay elevated and could rise if needed.
One camp of analysts points to ECB Executive Board member Schnabel, who warned that overlapping energy, AI investment and fiscal shocks could keep inflation sticky and that euro-area long-term inflation expectations have drifted from 2%. A contrarian thread notes the Riksbank as the softer voice, with Sweden's October flash CPI running well below forecast.
Key catalysts ahead: mid-December Riksbank, SNB and Norges Bank decisions, and Middle East energy developments.
By the numbers:
• Policy rates: Fed 3.75–4.00%, ECB 2.50%, BoE 3.75%, BoJ 1.25%.
Charts: finchiefs.com/data/policy-rates