BoE Set to Hold Rates as Oil Prices Spike

The Bank of England is expected to keep interest rates unchanged at 3.75% on Thursday, despite a recent spike in oil prices above $100 a barrel. The UK's inflation rate has dropped to a 15-month low of 2.6% in June, lower than the US and euro zone.

Despite market expectations for a potential interest rate hike by the BoE this year, economists polled by Reuters are divided on the longer-term outlook. Some see a two-in-three chance of a quarter-point BoE rate rise in September and almost three moves by next June.

BoE Chief Economist Huw Pill has expressed concerns about a second oil price shock in four years potentially making households and businesses expect higher inflation for years to come. However, Governor Andrew Bailey believes the BoE does not need to raise rates like the ECB because it had cut them by less before the Iran war started.

The BoE is also set to publish an analysis of its bond sales programme ahead of an annual MPC vote on its pace in September. The central bank may reconsider the pace of quantitative tightening, which has added 0.15-0.25 percentage points to long-term gilt yields.