MNI BOE WATCH: Set To Hold, As Iran Deal Eases Inflation Risks

The Bank of England is expected to hold Bank Rate at 3.75% on Thursday, with a potential resolution to the Middle East conflict reducing risks of further surges in inflation, even as the number of Monetary Policy Committee members voting for a hike could rise.

The ceasefire agreement reported on Monday has led to a rapid fall in commodity prices and expectations for BOE rates. Through April next year, market pricing now implies 37.5 basis points of hikes, about 25bps less hawkish than last week.

Oil prices are now lower than assumed in even the most benign of the three scenarios presented in April’s Monetary Policy Report, which saw oil prices gradually declining from a peak of USD108 a barrel to below USD80 in 2027Q1.

But, with many analysts interpreting a recent speech by Megan Greene as suggesting that she would join Chief Economist Huw Pill in voting for a hike at this week’s meeting, and with potential for Catherine Mann and Clare Lombardelli to do so as well, the number of MPC members calling for tightening could rise even as the prospect of an increase in Bank Rate grows more remote.

Seventeen of eighteen votes across the last two meetings were holds, while only Pill voted for a hike in April.

Bailey described April’s decision as an "active hold," signifying willingness to act if necessary. At that time, the Bank noted that a looser labour market and "a weakening economy could contain inflationary pressures." (See MNI INTERVIEW: UK Jobless Drive Productivity Rise - Saunders)

Alan Taylor, generally one of the more dovish members of the committee, told an MNI Connect event last month that he judged policy to be sufficiently restrictive to keep a lid on inflationary pressures.

The April statement also noted that a tightening in financial conditions since the conflict began "will help to reduce inflation over time," although it did not quantify this effect or suggest a potential response if conditions loosened. (See MNI: Calls For BOE To Be Clearer On Financial Conditions)

The next MPR is due at the July 30 meeting, before the end of the reported 60-day U.S.-Iran ceasefire.