ING’s James Smith highlights a softer UK backdrop than in 2022, with vacancies falling, unemployment rising and wage growth slowing, while firms and workers have limited pricing and bargaining power. He judges that the Bank of England (BoE) is torn between a prolonged pause and a symbolic move. Under ING’s new energy-price base case, a single summer rate hike is now seen as the most probable outcome.

BoE caught between pause and token move

"We think the Bank is stuck somewhere between a prolonged pause and a symbolic rate hike this summer. For now, with natural gas prices so benign, the need to act is limited."

"Remember that the Bank was otherwise on track to cut rates at least twice this year, so simply not doing that acts as de facto tightening."

"However, under ING’s new base case for energy prices, with a big spike in July, we think the Bank will struggle to avoid a rate hike over the summer. But we’re still unconvinced by market pricing; two hikes are priced by next spring and this may well increase with our projected rise in oil prices."

"Our view is that if we do get a hike this summer, it’s more likely to be a one-and-done move."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)