Bank of England Faces 2 Rate Hikes if Oil Tops $100 on Iran Conflict
Updated
Updated · The Guardian · Jul 27
Bank of England Faces 2 Rate Hikes if Oil Tops $100 on Iran Conflict
3 articles · Updated · The Guardian · Jul 27
Summary
$100 Brent crude has pushed economists to warn the Bank of England may need to abandon its current outlook and raise rates later this year, even though Thursday’s meeting is still expected to leave borrowing costs unchanged.
3.75% is the rate markets expect the BoE to hold this week, but analysts said a sustained oil shock above $90-$100 could quickly revive tightening bets as the renewed US-Iran fighting lifts fuel and transport costs.
Two 25-basis-point hikes would be needed at $100 oil, according to Nomura, while Capital Economics said a worst case of 7% inflation could drive UK rates up to 4.75%.
September is already being discussed by some economists as the earliest point for a move, though others argue weak demand means the BoE will look through the energy shock and resume cuts next year.
The debate reflects a wider central-bank dilemma as Europe heads into winter gas-stockpiling season and the ECB is also expected to confront war-driven inflation pressure at its 10 September meeting.