Bank Of England to Hold Rates for Remainder of Year Despite Inflation Risks

• The Bank of England (BOE) will leave interest rates unchanged at 3.75% for the rest of the year, according to a strong majority of economists polled by Reuters, ​clinging to a view they've held since the U.S.-Israeli war on Iran began in late February.
• The UK ‌economy has remained mostly resilient since then, with little evidence of any spillover from higher energy prices into the broader economy. That has given the central bank room to stay on the sidelines. But three of the nine Monetary Policy Committee members voted for an ​immediate rate rise to 4.0% at the July meeting, up from two in the previous meeting.
• Inflation likely ​rose to 2.9% in July from 2.6% in June, further above the BOE's 2% ⁠target, according to a separate Reuters poll ahead of official data due on Wednesday. But in its latest set ​of quarterly forecasts, the BOE expects inflation to rise above 3% later this year. Still, nearly 90% of economists polled ​by Reuters, 56 of 64, expect the Monetary Policy Committee to leave rates unchanged at 3.75% this year, up from 83% last month. Six expected a hike by then, and another two forecast a cut. The poll was conducted August 13-18.
• No economists forecast a rate ​change at the next MPC meeting in September. Financial markets are still pricing in one quarter-point rate rise ​by year-end. Elizabeth Martins, UK economist at HSBC, said "a big rebound in energy prices would certainly change things. But the real game changer ‌for ⁠the MPC, I think, is around second-round effects."
• Crude oil prices, trading at about $91 a barrel, are still about 25% above pre-war levels as the Strait of Hormuz, a key shipping route for Middle Eastern oil, is still closed. The most recent set of labour market data showed weak hiring and pay growth within the MPC's tolerance range, which economists ​said is likely to keep ​policymakers on the sidelines ⁠for now.

(Source: Reuters)