United Kingdom: Inflation risks and Bank Rate path – RaboResearch

RaboResearch Global Economics & Markets discusses the Bank of England’s decision to keep Bank Rate at 3.75% with a 7–2 split, noting that two members preferred a 25bp hike. The sharp fall in energy prices suggests inflation may peak below earlier projections. However, upside risks to energy and potential second-round effects keep the MPC cautious. RaboResearch now expects no further rate hikes in 2024.

BoE holds as energy risks reassessed

"As expected, the Bank of England held rates at 3.75%, with a 7–2 vote split as Huw Pill and Megan Greene favoured a 25bp hike."

"The sharp decline in energy prices has increased the likelihood that inflation will peak well below the most benign scenario outlined in the April Report."

"Even so, the MPC continues to judge that risks to energy prices remain skewed to the upside. It also remains too early to assess whether second-round effects will materialise."

"Given that current economic conditions do not appear particularly conducive to such effects, we have removed our call for a rate hike. The market still prices 31bp by year-end."

"We now expect Bank Rate to remain on hold for the remainder of the year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)