BoE Rate Hold Likely Amid Conflict Risks

The Bank of England (BoE) is expected to maintain its wait-and-see approach regarding interest rates, according to Societe Generale. Analyst Sam Cartwright argues that recent easing in UK services inflation and labour market loosening support this stance.

The baseline view is for the BoE's Bank Rate to remain at 3.75% through 2026, aiming to restrain underlying inflation pressures. However, a further escalation of the US-Iran-related energy conflict could trigger up to two 25bp BoE hikes.

Cartwright believes that any rise in headline inflation will have only modest second-round effects on wages due to spare capacity in the economy and continued loosening in the labour market.