BOE Holds Rates Amid Lower Inflation Forecasts

Financial markets are bracing for the Bank of England's decision on July 30th, with ING's James Smith expecting rates to remain unchanged. The bank is likely to keep its benchmark interest rate steady despite rising energy prices, which have led some to speculate about an imminent hike.

New forecasts from the Bank of England are expected to show UK inflation peaking at around 3% later this year, well below the 4% threshold that would trigger more aggressive monetary policy action. According to ING, oil and natural gas prices would need to rise significantly further for the Bank to hike rates in September.

In particular, oil prices would need to return to $120 per barrel (from around $90 today) and Dutch TTF natural gas prices would need to reach around €80/MWh (from €58 currently) for inflation to exceed 4%. While this is not an impossible scenario, ING's base case is that the Bank of England stays on hold through 2026.