BoE Interest Rate Decision Hinges on Energy Price Volatility

The Bank of England's next move on interest rates is being closely watched after the UK's annual inflation rate jumped to 2.9% in July, mainly due to rising gas and electricity prices.

This increase would normally raise the odds of the central bank raising interest rates to return inflation to its 2% target. However, the jobs market cooled down in the second quarter, suggesting the economy is not overheating, which could reduce the need for rate hikes.

ING developed markets economist James Smith believes that unless energy prices continue to rise in the coming months, the bar remains high for a rate hike this year.

Smith notes that the jobs market is cool, with vacancy numbers and unemployment rates indicating little sign of wage growth turning higher. He predicts that the Bank will keep rates on hold until next spring, before cutting rates at least twice in 2027.