Economists expect the Bank of England to leave interest rates unchanged at this week’s meeting even as renewed conflict in the Middle East pushes energy prices sharply higher. Since the Monetary Policy Committee’s last meeting in June, the collapse of the U.S.-Iran ceasefire has sent global oil prices back to around $100 a barrel, while European natural gas prices have climbed to their highest level since the early stage of the conflict. If shipping routes in the Gulf remain disrupted, economists said oil prices could rise further. Even so, recent UK data has given policymakers room to stay on hold. The economy performed better than the MPC had expected in the early phase of the conflict, with GDP rising 0.7% in the three months through May. Inflation has also come in below expectations for three straight months, with CPI easing to 2.6% in June. Wage growth, one of the main sources of domestic inflation pressure, has slowed, and food price increases have moderated. Economists said the MPC is likely to keep rates unchanged on Thursday while signaling that it stands ready to tighten policy if energy prices rise sharply again or if a one-off shock turns into more persistent inflation.
Economists expect the Bank of England to keep interest rates unchanged at this week’s meeting, even as renewed conflict in the Middle East drives another jump in energy prices. They said the central bank is likely to strike a hawkish tone while leaving rates on hold.
Since the Monetary Policy Committee’s last meeting in June, the breakdown of the U.S.-Iran ceasefire has pushed global oil prices back toward $100 a barrel. European natural gas prices have also climbed to their highest level since the early stage of the conflict. Economists added that oil could rise further if shipping routes in the Gulf continue to face disruption.
The UK economy performed better than the MPC had expected in the initial phase of the conflict. GDP rose 0.7% in the three months through May. At the same time, there are so far few signs that the energy shock is feeding into more persistent price pressure.
Consumer price inflation has come in below expectations for three consecutive months, falling to 2.6% in June. Wage growth, seen as one of the main drivers of inflation pressure, has slowed, and food price increases have also moderated.
Economists said that backdrop should allow the MPC to keep the benchmark rate at 3.75% at Thursday’s meeting, while signaling that it would be prepared to tighten policy if energy prices rise sharply again or if a one-off price shock starts to become a more lasting problem.
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