Investing.com — UBS AG economists expect the Bank of England’s Monetary Policy Committee to sound more cautious at its September 17 meeting as a re-escalation in the Middle East and rising energy prices threaten to fuel inflation, even as the central bank keeps interest rates unchanged.
The bank will likely hold Bank Rate at 3.75%, broadly in line with market pricing of a 2.8 basis-point move for September, UBS said in a note dated Wednesday.
The broker expects the voting split to remain 6-3, with Huw Pill, Megan Greene and Catherine Mann again voting for a 25 basis-point hike, while the rest of the committee backs holding rates.
Despite the hold, UBS said the MPC’s tone is likely to shift more hawkish. The committee is expected to reiterate that there are no signs so far of second-round effects on wages and prices, drawing some comfort from the latest Decision Maker Panel survey showing broadly stable wage and inflation expectations.
UBS also noted that the recent rise in may be doing some of the tightening work without the Bank needing to raise rates.
Still, the rise in energy prices is likely to concern the MPC, UBS said, because the committee has previously argued that a more persistent energy shock raises the risk of second-round effects feeding through to broader inflation.
Rising expectations of rate hikes from other major central banks, the Federal Reserve and the Bank of Japan, alongside the European Central Bank, which has already delivered one hike and is expected to tighten further, may also pressure the MPC to act more proactively, consistent with arguments from Greene and Pill.
UBS said it expects the majority of the committee to favor holding rates, citing tighter financial conditions and the absence of second-round effects, but the countervailing arguments are likely to push the MPC toward flagging greater upside risks to its inflation projection compared with July.
UBS continues to expect the Bank to hold rates through the rest of 2026, followed by two rate cuts in 2027, previously expected in February and April.
However, the broker flagged rising risks that the Bank could deliver a hike if energy prices stay elevated for longer, given reputational and risk-management considerations.
UBS said the November 5 meeting, which follows the Autumn Budget on October 28 and includes updated economic projections, will be important for the rate path.
Even if the MPC hikes, UBS said it would not expect a new tightening cycle, but rather one or two “adjustment” hikes followed by a relatively rapid reversal through cuts.
UBS also flagged a rising risk that rate cuts could be pushed further into 2027.