BoE Expected to Sound Hawkish as Energy Prices Rise

The Bank of England's Monetary Policy Committee is expected to sound more cautious at its September 17 meeting as energy prices rise and inflation concerns grow, according to UBS AG economists. Despite keeping interest rates unchanged at 3.75%, the committee may express hawkish tones due to the re-escalation in the Middle East and rising energy costs.

UBS expects a 2.8 basis-point move for September, which is broadly in line with market pricing. The voting split is likely to remain 6-3, with Huw Pill, Megan Greene, and Catherine Mann again voting for a 25 basis-point hike.

The recent rise in energy prices may be doing some of the tightening work without the Bank needing to raise rates, UBS noted. However, the committee has previously argued that a more persistent energy shock raises the risk of second-round effects feeding through to broader inflation.

Rising expectations of rate hikes from other major central banks, including the Federal Reserve and the European Central Bank, may also pressure the MPC to act more proactively. UBS expects the majority of the committee to favor holding rates due to tighter financial conditions and the absence of second-round effects.