BoE Seen Holding as Energy Prices Bite UK Inflation

The Bank of England (BoE) is likely to hold its view and leave interest rates unchanged in September, according to Nomura's Global Markets Research team. The team notes that UK Consumer Price Index (CPI) data for August showed headline inflation at 3.1%, which was broadly as expected.

The BoE has been comfortable with the current Bank Rate, viewing it as restrictive, and would have reduced it if not for the Iran war. However, surging energy prices are raising concerns about inflation moving higher in coming months, which could increase pressure on the Monetary Policy Committee (MPC) to raise rates.

The team also highlights that input and output prices were softer than expected, with input prices rising by 0.3% month-over-month and output prices increasing by 0.7%. The lack of an increase in core and services inflation likely cements an unchanged Bank Rate decision from the BoE this week.