London, United Kingdom. The Bank of England is expected to keep its interest rate unchanged at 3.75 per cent on Thursday, despite a recent rise in oil prices above $100 a barrel linked to the US-Iran conflict.
British inflation fell to a 15-month low of 2.6 per cent in June, below the central bank’s forecasts.
Inflation and energy prices
A delay in the response of regulated domestic energy prices to higher wholesale costs has left Britain with lower inflation than the United States and the euro zone.
The European Central Bank is expected to raise interest rates for a second time this year in September or October.
Outlook for borrowing costs
A Bank of England rate increase would add pressure on Prime Minister Andy Burnham, who has pledged to focus on reducing the cost of living. It would also raise government borrowing costs ahead of the administration’s first annual budget in the autumn.
Economists surveyed by Reuters and financial markets see no meaningful prospect of a rate rise this week, although they are divided on the longer-term outlook.
Following last week’s increase in oil prices, interest-rate futures indicated a two-in-three chance of a quarter-point rate rise in September and nearly three increases by next June.
Even after oil prices fell to $90 a barrel on Monday, markets continued to fully price in a Bank of England rate increase by November. Only a small number of economists expect a rate rise this year.
Henry Cook, a senior economist at Japan’s MUFG, withdrew his previous forecast for a precautionary Bank of England rate increase similar to one expected from the European Central Bank.