Economists in the UK expect the Bank of England’s base rate to be held potentially until the summer over concerns global inflation will rise on the back of the ongoing conflict in the Middle East.
In a report published last week, Oxford Economics forecast that the conflict would push up UK inflation by 0.4 percentage points – although it said the situation is evolving quickly and this could change again – and it now expects base rate to be held.
“The more uncertain inflation environment likely takes a March interest rate cut off the table. If the conflict is short and energy prices quickly fall back, the Monetary Policy Committee will probably resume cutting in either April or June. But if the surge in energy prices persists or expands, the MPC will be set for an extended pause,” said senior UK economist Edward Allenby.
Meanwhile, Capital Economics said it “makes sense” for the base rate to be held until the conflict settles and the inflationary picture becomes clearer.
“Overall, it makes sense for the Bank to keep rates on hold until there is more clarity on the situation in the Middle East and what’s coming down the line for UK inflation,” said chief UK economist Paul Dales.
“We have changed our central forecast so that Bank Rate stays at 3.75% at the policy meeting on Thursday 19th March and at the meetings in April and June too.”
Nigel Green, CEO of DeVere Group, added: “The window for the first rate cut has materially shifted. Markets had been looking for earlier action, but inflation dynamics and the spike in oil prices mean policymakers will almost certainly hold next week and remain cautious in the months ahead.”
