BoE: Keeping rates steady amid shifting energy risks – Standard Chartered

Bank of England Expected to Maintain Rates Amid Uncertainty

Christopher Graham of Standard Chartered anticipates that the Bank of England will leave interest rates unchanged at its upcoming meeting on March 19. The decision is likely to see a 7–2 split, with two members, probably Taylor and Dhingra, supporting a 25 basis point reduction. The central bank appears prepared to overlook a temporary spike in energy prices, while keeping a close eye on developments in the Middle East, recent softness in UK employment figures, and historical precedents from 2011 and 2022.

Interest rates are expected to remain steady, as the majority of the Monetary Policy Committee (MPC) favors holding the current stance. The meeting minutes will shed light on how each MPC member evaluates the risks tied to ongoing geopolitical tensions.

Although the BoE is likely to disregard short-lived increases in energy costs, members with a dovish outlook may emphasize potential threats to economic growth, while those with a more hawkish perspective are expected to highlight inflationary pressures.

The likelihood of a rate hike appears diminished, partly because the BoE has been less aggressive in reducing rates during this cycle, and some committee members still view the current policy as restrictive.

Additionally, the UK job market has shown clearer signs of weakening, with unemployment rising steadily since mid-2022 and wage growth decelerating since mid-2023. The next set of labor data, due on March 19 before the BoE meeting, could further influence the central bank’s approach, drawing on lessons from previous years.

Looking ahead, further monetary easing is anticipated, with forecasts suggesting a terminal rate of 3.00%. However, the exact timing of future rate cuts remains uncertain. Should hostilities subside and energy prices retreat, the current plan of quarterly cuts starting in the second quarter may proceed. Conversely, a prolonged period of elevated energy prices could delay the next reduction to the second half of the year or even into 2027.

(This report was produced with the assistance of artificial intelligence and reviewed by an editor.)