ING economist James Smith argues that a June Bank of England (BoE) rate hike now appears unlikely as weaker United Kingdom (UK) data and lower Oil prices ease pressure on policymakers. However, he notes that a July move remains possible if energy flows through the Strait of Hormuz fail to improve, with the Bank likely opting for a prolonged pause under its current base case.

BoE seen pausing but July risk

"A June rate rise now looks unlikely amid a fall in oil prices and weaker economic data. Yet a hike in July is possible if energy flows through the Strait of Hormuz don’t materially – and durably – improve over the next 10 weeks."

"Back then, we thought a June hike had become marginally more likely than not. That’s no longer the case."

"Energy markets now sit somewhere between the Bank’s April “scenario A” and “scenario B”. Crucially, most officials judged at the time that neither scenario automatically warranted rate rises."

"That would leave inflation peaking at around 3.7% in September before hovering near 3.5% into next spring – bearing in mind lower household energy bills into the winter will be offset by rising food inflation."

"That’s why we’re not ruling out a July hike if the Strait of Hormuz remains heavily disrupted. And it’s why we’re likely to see a greater number of officials vote for a rate hike later this month."

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