BoE Holds Fire as War-Driven Inflation Fears Persist

The Bank of England will keep its interest rate at 3.75% for the rest of the year and through mid-2027, according to a Reuters poll of economists.

Higher energy prices stemming from the ongoing U.S.-Israeli war on Iran have delayed any prospect of a cut in UK interest rates until late next year, economists say.

The market is pricing three rate hikes through the middle of 2027, starting in November. Brent crude oil futures are approaching $100 a barrel due to the conflict, but so far, there has been no evidence of higher energy costs filtering through to inflation in the wider economy, which is growing at a steady pace.

For the Bank of England, 'there are no flashing warning signs,' said Gabriella Willis, UK economist at Santander CIB. A sharp rise in global bond yields has tightened overall financial conditions and threatens to further drive up mortgage rates.