BoE Rate Hike Prospects Rise as European Natural Gas Prices Soar

The Bank of England (BoE) may be inclined to raise interest rates again due to rising European natural gas prices, which could underpin the British Pound against the US Dollar. The energy-driven inflation risks are reviving concerns about price pressures, particularly in the UK, where natural gas futures have surged by 62.5% since July.

The BoE's Monetary Policy Report in July highlighted a potential peak in natural gas prices at over 123p in Q4, followed by a decline to under 60p by the end of the forecast period. However, with current prices reaching their highest since January 2023, some MPC members, like Catherine Mann, may argue that energy-related inflation risks have worsened.

The BoE's patience is being tested, and market expectations suggest a rate hike by year-end is becoming increasingly likely. The natural gas price backdrop in Europe is fueling divergence and providing support for the Euro and Pound against peers.