BoE Set to Hold Interest Rates as Oil Prices Surge Amid Middle East Tensions

The Bank of England is expected to hold interest rates steady at 3.75% next week despite rising tensions in the Middle East and a surge in oil prices.

Economists predict another seven-to-two vote in favor of maintaining the current rate, with some warning that renewed hostilities could drive inflation higher.

The Bank's Monetary Policy Committee (MPC) will meet on Thursday, July 30, amid a backdrop of easing inflation. The UK consumer price index inflation eased back to a 15-month low in June at 2.6%, largely due to a slowdown in food and fuel prices.

However, experts predict that inflation will rise back to 3.25% later this year as higher energy costs feed into household bills from July. The end of the ceasefire between US-Israeli and Iranian forces has increased uncertainty over the outlook, with oil prices surging above $100 per barrel for the first time since May.

Thomas Pugh, chief economist at RSM UK, believes oil prices will 'largely' steer the path of interest rates for the next year. If they remain close to $100 per barrel over the summer, a September rate hike would move firmly onto the table, with another in the winter likely.