Bank of England Holds Interest Rates as Energy Prices Soar

The Bank of England is expected to keep interest rates on hold at its July 30 meeting despite rising energy prices. ING Economics forecasts a 7-2 vote in favor of keeping rates unchanged, with updated inflation projections showing prices close to 3% in the second half of this year and early next year.

ING notes that the Bank's current forecasts do not fully capture the latest rise in energy costs, as they are based on average oil and gas prices over a three-week observation window. According to ING, if current energy prices were used, inflation projections would likely show prices peaking between 3.5% and 4%.

ING suggests that energy prices would need to rise further for the Bank's stance to shift. Specifically, oil prices reaching $120 a barrel and Dutch TTF natural gas prices rising to around €80 per megawatt-hour could push inflation above 4%, triggering some modest tightening.