Report published September 25, 2026
European Macro Weekly – MUFG Research (September 2026)
MUFG · September 25, 2026
The BoE is preparing the ground for 25bp rate hikes in November and February to a terminal rate of 4.25% amid rising energy pressures from the US-Iran conflict, despite slowing UK economic activity. Meanwhile, the UK government faces shrinking fiscal headroom of under £10bn ahead of the October Budget, and euro area September inflation is expected to reach 3.7%, backing MUFG's call for an October ECB hike.
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Finvaulta summarizes MUFG's analysis. Attribute opinions, forecasts, time-sensitive values, and chronology to the issuer and report date; do not treat this page as an independent verification or a current market-data source.
Key Takeaways
- 1.The Bank of England is increasingly likely to hike rates by 25bp in November and February, taking the Bank Rate to a terminal 4.25% due to persistent energy price pressures from the US-Iran shock.
- 2.UK fiscal headroom is projected to deteriorate by approximately £15bn since March ahead of the 28 October Autumn Budget, leaving limited room for maneuver and likely requiring tax increases.
- 3.Euro area headline inflation for September is forecast to rise to 3.7%, supporting MUFG's out-of-consensus call for a back-to-back ECB rate hike in October.
Table of Contents
- BoE policymakers lay more groundwork for a November hike
- Putting the energy shock in context
- The UK economy is once more losing steam in H2
- Will the government leave itself less fiscal headroom?
- What we're watching next week
- Key data releases and events (week commencing Monday 28 September)
Report data
Putting the energy shock in context
| Metric | Estimate | Context |
|---|---|---|
| Bank Rate Forecast (Terminal Rate) | 4.25% | MUFG forecasts two 25bp hikes in November and February to reach a terminal rate of 4.25%. |
| UK Flash Composite PMI | 51.7 index points | Shows clear softening from earlier in the year while remaining in expansion. |
| UK Neutral Rate Estimate | ~3.5% | Bank Rate of 4.25% would be moderately restrictive at ~75bp above neutral. |
| UK Government Borrowing Overshoot | 8 GBP bn | Public finance data showing borrowing running above the OBR's March forecast. |
| Deterioration in UK Fiscal Headroom | 15 GBP bn | Penciled-in deterioration in headroom, leaving it modestly below £10bn. |
Reports in this series
European Macro Weekly is shown in chronological order through this edition, published on September 25, 2026.
Part of the European Macro Weekly series — view all 7 editions
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