ING Economics expects the Bank of England to leave rates unchanged on July 30 despite rising energy costs, with another 7-2 vote. Only oil near $120 a barrel and Dutch TTF gas around €80 per megawatt-hour would push inflation above 4% and likely trigger modest tightening.
The Bank of England is poised to keep interest rates on hold at its July 30 meeting despite a rise in energy prices, ING Economics said in a note dated Monday. The brokerage expects another 7-2 vote to keep rates unchanged this Thursday.
ING said the central bank’s updated forecasts will likely show inflation close to 3% in the second half of this year and into early next year. That sits below the 4% threshold the Bank has previously said is statistically more likely to trigger second-round effects and a longer-lasting bout of price pressure.
Energy costs land outside the Bank’s price window
Those forecasts, however, will not fully capture the latest rise in energy costs, according to ING. The Bank typically uses average oil and gas prices over a three-week observation window, likely beginning in early July.
Based on current energy prices, ING said inflation forecasts would be higher, probably showing inflation peaking between 3.5% and 4%. Energy prices would therefore need to rise further to shift the Bank’s stance.
ING said oil reaching $120 a barrel, from $90 currently, and Dutch TTF natural gas prices rising to around €80 per megawatt-hour, from €58, would push inflation above 4% and would likely trigger some modest tightening. The brokerage said it is not difficult to see how that could happen if the Strait of Hormuz stays blocked throughout August, but its base case is that the Bank stays on hold through 2026.
Mann could join Pill and Greene in voting for a hike
ING said it would surprise nobody if Catherine Mann, described as a long-time hawk, joined Huw Pill and Megan Greene in voting for a hike this week. Claire Lombardelli, who previously railed against rate cuts before the Iran War, joining her is also not totally out of the question, the brokerage added, though that would be a much bigger surprise.
Five officials, including Governor Andrew Bailey, appear much less convinced that the economy is as susceptible to the sort of inflation wave seen four years ago, ING said, adding that recent data backs them up. The jobs market remains fragile, best characterized according to ING by “low hire, low fire,” with private-sector wage growth below 3%.
Rather than an interest rate hike, ING currently projects two rate cuts starting in the spring of 2027, contingent on there being no material fiscal stimulus at the Autumn Budget.
Source: Investing.com
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