BoE Poised for Steady Rates Despite Oil Price Surge

The Bank of England is expected to keep interest rates steady this week despite rising oil prices. However, the central bank may slow down its plan to offload government bonds bought between 2009 and 2021.

Bank Governor Andrew Bailey said last week that there's no 'secret plan' to raise interest rates this year unless higher energy costs translate into lasting domestic price pressures. Economists polled by Reuters unanimously predict the BoE will hold rates steady in September, with most expecting a rate cut next year rather than an increase.

Despite this, some analysts are doubting their predictions, citing the speed of oil price increases and hardening central bank rhetoric. Barclays interest rate strategist Moyeen Islam wrote that a surprise 25 basis-point rate hike cannot be ruled out. Financial markets now price in a 30% chance of a quarter-point rate hike on September 17, up from less than 10% at the start of last week.

The BoE is also set to vote on the pace at which it unwinds its £895 billion bond portfolio, with some analysts expecting a further slowdown in quantitative tightening. Deputy Governor Dave Ramsden said central bank research shows that QT has a cumulative 25 basis-point upward impact on gilt yields, but estimates vary.