Bank of America Delays UK Central Bank Rate Cut Expectation to June Due to Escalating Middle East Crisis Inflation Risk

Bank of America Global Research said on Friday that it has delayed its forecast for the Bank of England’s rate cuts from March to June, citing rising energy prices that have heightened inflation risks and created uncertainty about policy prospects.

The Wall Street investment bank previously expected the Bank of England to cut rates in March and June, now projecting cuts of 25 basis points in June and September respectively.

This shift is due to geopolitical tensions in the Middle East leading to higher energy prices, which have increased inflation and added uncertainty to the Bank of England’s rate-cut path.

The conflict has disrupted recent inflation expectations, as Bank of America previously anticipated UK inflation would approach the Bank of England’s 2% target in the coming months.

Meanwhile, Brent crude oil prices have risen above $100 per barrel, reaching nearly $120 earlier this week.

Bank of America stated, “If energy prices reverse by then, we might see an earlier rate cut in April, but if the conflict persists, there is a risk of further delays and reducing the number of rate cuts this year.”

The bank added that the Bank of England may maintain a dovish stance but will emphasize increased uncertainty, and any policy tightening thresholds remain high.

Prior to this, Goldman Sachs, Standard Chartered, and Morgan Stanley also postponed their forecasts for easing policies by the Bank of England, now expecting the first rate cut in the second quarter due to Iran-related tensions pushing up energy prices and inflation risks.

In a report on Thursday, Bank of America stated, “The judgment for further policy easing will become more difficult to gauge,” noting that slowing economic growth and a weak labor market are key factors influencing the Bank of England’s decisions.

An official from the UK’s Office for Budget Responsibility said that if energy prices stay at current levels, UK inflation could reach around 3% by the end of the year, rather than the approximately 2% forecast by the country’s fiscal authorities.