Sam Cartwright at Societe Generale argues recent easing in United Kingdom (UK) services inflation and labour market loosening support the Bank of England’s wait-and-see stance. The baseline view is Bank Rate stays at 3.75% through 2026 to restrain underlying inflation. Nonetheless, a further escalation of the US-Iran-related energy conflict and renewed price spikes could trigger up to two 25bp BoE hikes.
Bank Rate seen steady through 2026
“Overall, the continued easing in services inflation, alongside further signs of labour market loosening yesterday, supports the BoE’s wait-and-see approach.”
“Our baseline assumption is that Bank Rate remains at 3.75% throughout 2026, as this degree of restrictiveness should continue to weigh on underlying inflation pressures.”
“That said, a further escalation of the conflict and renewed energy price increases could prompt the BoE to deliver two 25bp rate hikes.”
“Moreover, we continue to believe that any rise in headline inflation will generate only modest second-round effects on wages, given spare capacity in the economy, continued loosening in the labour market and constrained corporate pricing power.”
“Consequently, we expect only a limited increase in core inflation from current levels.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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