Bank of England Shifts Tone on Rate Hikes as Energy Price Concerns Resurface

The Bank of England is expected to maintain its interest rates on Thursday, but economists at UBS are highlighting a shift in tone that suggests a future rate hike may not be as far-fetched as it seemed over the summer.

According to Dean Turner, an economist at UBS, the Monetary Policy Committee (MPC) is widely expected to keep Bank Rate unchanged. However, what's more important than the decision itself is the tone of policymakers regarding future rate moves.

The chances of a near-term cut in interest rates are fading, and the possibility that the Bank's next move could be an increase rather than a decrease is becoming harder to ignore. This is a significant change from July, when rate-setters held off on raising rates after a split vote, citing easing inflation, slowing wage growth, and a cooling jobs market.

The main driver of this shift in tone is the resurgence of energy price concerns due to rising tensions in the Middle East. Oil prices have increased, reviving inflation worries that central banks had started to alleviate. While higher energy costs do not automatically mean higher interest rates, recent MPC comments hint at a growing fear that it could seep into expectations and wider pricing.