BoE Faces Hike Pressure as Oil Prices Surge Past $100

The Bank of England is facing renewed pressure to raise interest rates ahead of its September meeting, as surging oil prices and inflation concerns mount. Markets assign less than a one-in-three chance of a rate hike at Thursday's meeting, with the key rate currently at 3.75 per cent.

Rising energy costs, driven by a renewed escalation of the war in the Middle East, are adding to inflation risks and challenging the view that the broader effects of the Iran-linked shock will remain contained. Oil prices above $100 are seen as a test of the more dovish assumptions within the committee, potentially opening the door to a more hawkish outcome later this year.

Deutsche Bank economist Sanjay Raja said the MPC's patience may be running thin and that the argument for keeping rates on hold is gradually weakening. The Bank of England is weighing its decision against a backdrop of relatively resilient UK GDP growth and tightening moves elsewhere, including recent rate hikes from the European Central Bank.

The upcoming meeting will also consider the pace of balance-sheet reduction as bond markets remain under pressure ahead of the October 28 Budget. Official UK unemployment and inflation figures due in the days before Thursday's decision could further shape the committee's stance and market expectations for the remainder of the year.