Hawkish Shift: Bank of England Economists Predict Rate Hike

The Bank of England may raise interest rates as economists predict price shocks triggered by the war in Iran will ripple through the global economy. Analysts across financial firms expect the Bank to leave interest rates unchanged at 3.75 per cent, but some traders fear that more policymakers could back a rate hike.

Catherine Mann and Huw Pill, two hawkish members of the Monetary Policy Committee (MPC), voted for higher rates in the last meeting. Strategists at Mizuho believe Mann may add to division by backing an interest rate increase, while deputy governor Clare Lombardelli is also seen as a potential hawk.

The Bank has been grappling with inflation fuelled by energy price spikes due to the war in Iran. Inflation is likely to remain above the Bank's 2 per cent target until 2029 under even a benign scenario where hostilities cool and oil prices level out at $74 per barrel, according to NIESR.

A 6-3 or 5-4 split on the MPC could signal more interest rate hikes. The yield on two-year gilts already suggests investors expect up to three hikes on the horizon.