Comprehensive MPC rate probability analysis and UK economic insights
Bank of England Analysis's next policy meeting is scheduled for 30 July 2026. The current market-implied probability of no change is 99%.
The Bank of England's (BoE) Monetary Policy Committee (MPC) meets eight times per year to set the Bank Rate. Rate change probabilities are calculated based on GBP short term interest rate curve, as far as available. Missing data points are estimated using a Joint Least-Squares Bootstrap. These probabilities are cumulative relative to today, not independent bets placed fresh at each meeting: a given meeting's hike probability is the chance the rate is higher than today's level by that meeting date, and it already includes any move priced in for earlier meetings. A higher probability at a later meeting therefore reflects the accumulation of moves priced in over time, not a series of separate coin flips — these figures should not be added, multiplied, or compared across meetings as if each one stood alone.
Based on GBP short-term interest rate futures (SONIA). Shows where markets expect the Bank Rate to average at each future date, comparing today's expectations with those from 1 and 4 weeks ago.
Data as of July 28, 2026
While the empirical probabilities above show what financial markets expect (based on yield curve pricing), the theoretical rate below shows what economic models suggest the BoE should do based on current economic conditions like inflation and growth.
Comparing these helps us understand whether the market expects the BoE to follow economic theory, or if they expect the BoE to take a different path for practical reasons.
The following analysis compares market-implied rate expectations (empirical probabilities derived from SONIA futures) with model-based theoretical rates calculated using the BoE's structural framework. This comparison provides insight into the market's assessment of the BoE's reaction function relative to its historical policy rule.
| Indicator | Current | Target/Neutral | Gap |
|---|---|---|---|
| Inflation | 3.40% | 2.00% | +1.40 pp |
| Output Gap | -1.72% | 0.00% | -1.72 pp |
| Unemployment | 5.00% | N/A | N/A |
We build a simple policy benchmark from the indicator table. The model starts with a neutral rate, adds current inflation, and then adjusts for inflation being above or below target and for economic slack.
Inflation and the output gap are the direct inputs in the simplified rule. Unemployment is shown as an extra labour-market check that helps interpret the output-gap estimate rather than as a separate formula term.
See the full Taylor Rule methodologyPolicy-rule mapping: the theoretical BoE rate is calculated as a Taylor-rule style benchmark in which CPI enters in levels and relative to target, while macro slack enters through the output-gap term.
Here, $r^*$ denotes the neutral real rate, $\pi_t$ current inflation, $\pi^*$ the BoE target, and $y_t$ the output gap. Unemployment is displayed as a supplementary slack indicator to contextualise the output-gap estimate. Full derivation and parameter discussion are on the Taylor Rule methodology page.
The theoretical rate is calculated using a Taylor Rule adapted for the eurozone. It considers:
When actual rates are below the theoretical rate, policy is considered "dovish" (supporting growth). When above, it's "hawkish" (fighting inflation).
Model: NAWM-Based Taylor Rule
Specification:
Where: $i_t^*$ = theoretical policy rate, $r^*$ = neutral real rate (~1.0% for UK), $\pi_t$ = current CPI inflation, $\pi^*$ = inflation target (2.0%), $\text{Gap}_t$ = output gap estimate, $\alpha$ = 0.5 (inflation response), $\beta$ = 0.5 (output response)
Note: The BoE's actual COMPASS model is a more sophisticated DSGE framework. This simplified Taylor Rule provides a comparable benchmark consistent with the BoE's reaction function literature. For full model specifications, see the Bank of England Economic Models page.
Empirical Probabilities:
Economic Indicators:
Explore detailed discussion of the BoE's COMPASS model
View Bank of England Economic ModelsValidation: Model outputs are continuously compared against BoE staff projections and consensus forecasts from major institutions (Bloomberg, Reuters surveys).
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