Oil Price Surge Could Force Bank of England's Hand on Interest Rates

The Bank of England may hold interest rates steady at its July 30 meeting despite rising energy costs, according to ING Economics.

ING expects a 7-2 vote to keep rates unchanged and forecasts inflation near 3% in the second half of this year and early next year, below the central bank's threshold for triggering second-round effects. However, these forecasts do not fully capture the latest rise in energy costs.

In order to shift the Bank's stance, oil prices would need to reach $120 a barrel from their current level of $90, while Dutch TTF natural gas prices would need to rise to around €80 per megawatt-hour from €58. If this happens, inflation could peak between 3.5% and 4%, prompting some modest tightening.