The Bank of England’s entire strategy for 2026 rests on a single visual metaphor: the “hump.” The decision to cut rates to 3.75% is based on the belief that the inflation spike of 2022-2024 was a temporary mountain that we have now climbed over. The majority of the MPC believes we are on the downward slope, where gravity will naturally pull prices back to the 2% target.
This “hump” theory suggests that the structural drivers of inflation (energy shocks, supply chain breaks) are fading. Therefore, keeping interest rates high is no longer necessary and could be damaging. The drop to 3.2% inflation in November is the evidence they use to back this up.
However, the dissenting “hawks” worry that the hump is actually a “plateau.” They fear that while goods prices have fallen, service prices have established a new, higher baseline. If they are right, cutting rates now is like taking off your parachute before you’ve landed.
The risk of the “hump” strategy is complacency. If another supply shock hits—say, a geopolitical crisis in the Middle East—inflation could spike again, turning the hump into a “W” shape. This would force the Bank to raise rates aggressively, shredding their credibility.
For now, the Bank is all-in on the hump. They are betting their reputation that the worst is behind us. The rate cut is the payout from that bet. In 2026, we will find out if the map they are using matches the terrain.