BoE Stands Pat as Inflation Risks Persist Amid Iran Tensions

The Bank of England is expected to keep its key interest rate at 3.75% for now, according to a Reuters poll of 70 economists. The poll was conducted between July 21-24 and found that all respondents believe there will be no change in the rate on Thursday. In fact, a firm majority (58 out of 70) expect the rate to remain at 3.75% through 2026.

British inflation dipped to 2.6% in June, but it's unlikely to last as tensions with Iran have reignited, causing fuel prices to rise again. The conflict has given new Prime Minister Andy Burnham little relief from the pressure to cut living costs. However, any tax decisions will be announced in the budget expected in the autumn.

Ellie Henderson at Investec believes that the Monetary Policy Committee (MPC) is basing their decision on the fact that policy is already in restrictive territory. She expects no change this year. George Buckley at Nomura warns that now energy prices are rising sharply, so too are the risks of the MPC being forced into a hike to counter second-round effects or the risk of them developing.