Rabobank’s Global Daily notes that the Bank of England kept rates unchanged in what policymakers call an “active hold,” effectively tightening policy versus pre‑war expectations for cuts. The authors argue UK conditions are not conducive to second‑round inflation effects and now expect the Bank of England to stay on hold through year‑end, as global monetary policy converges at a slightly more restrictive level.

BoE seen on hold into year end

“The 7-2 split vote underscores that the MPC is hesitant to hike rates, but policymakers remain vigilant for the risks of an energy-driven inflation shock. Having said that, the case for a near-term rate cut has weakened.”

“The current Brent futures curve sits well below the most benign scenario that the Bank of England presented in April. Even so, energy prices will remain a key focus. The longer energy prices stay elevated, the greater the risk of second-round effects. However, we believe that UK economic conditions are not conducive to the emergence of such a price and wage-setting dynamic.”

“On top of that, inflation data for May suggested that broad-based disinflation has resumed, which may help soften consumers’ inflation expectations. So, Governor Bailey indicated that most of the MPC members are willing to tolerate temporarily above-target inflation. We therefore no longer forecast a rate hike, andwe now expect the Bank of England to stay on hold through the end of this year.”

“Unchanged rates in the UK and US this week underscore the differences in global monetary policy dynamics. Recall that the ECB hiked last week, as did the Bank of Japan on Tuesday. However, the ECB’s starting point, a broadly neutral policy rate, was clearly different from the slightly restrictive policy stance in the UK and US.”

“Nonetheless, the memorandum of understanding removes some of the immediate risks for the global economy and markets. Accordingly, the Bank of England held rates unchanged yesterday, which policymakers consider an “active hold.” Prior to the Iran war, the Bank and money markets had been looking for cuts this year, which means that not cutting already amounts to some degree of policy tightening.”

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