BoE Seen Holding Rates at 3.75% as Inflation Risks Rise

The BoE is expected to keep interest rates unchanged at 3.75%, as policymakers assess rising inflation risks linked to the Middle East conflict. The sharp increase in oil and gas prices has complicated the outlook, pushing inflation expectations higher and prompting markets to abandon earlier bets on a near-term rate cut. Prior to the escalation in geopolitical tensions, a reduction to 3.50% had been seen as highly likely, but that conviction has faded as energy prices climbed above $100 per barrel and uncertainty over the duration of the conflict persists. The Monetary Policy Committee is therefore expected to adopt a cautious tone, potentially adjusting its forward guidance to emphasise data dependency rather than signalling imminent easing. Investors will closely scrutinise policymakers’ comments for clues on how persistent they expect inflationary pressures to be. While most economists still expect rate cuts later in the year, the timing and extent remain highly uncertain.