BoE Seen Holding Rates, But With Hawkish Tone Amid Energy Price Fears

Bank of America's analysts expect the Bank of England to keep its key interest rate at 3.75% on September 17th, but deliver a more hawkish message in response to rising energy prices and their potential impact on inflation.

The analysts predict a 6-3 vote to hold the current rate, with the BoE choosing to 'wait out' the initial shock rather than react immediately. However, they note that this decision may be accompanied by a less relaxed tone compared to July's meeting.

The main concern is the risk of 'second-round effects,' where an initial increase in costs leads to broader price and wage increases that sustain high inflation even after the original shock fades. BofA argues that policymakers will need to carefully monitor these effects and their impact on the job market.