The Bank of England (BoE) is widely expected to keep interest rates on hold at its upcoming meeting on 30 July, despite recent increases in energy prices, according to ING’s James Smith. ING projects that new BoE forecasts will show UK inflation peaking around 3% later this year, which is below the 4% threshold previously identified by the Bank as likely to trigger more persistent inflation and potential rate hikes. ING notes that oil and natural gas prices would need to rise significantly further—specifically, oil to US$120/bbl from $90 and Dutch TTF natural gas to €80/MWh from €58—to push inflation above 4% and prompt a tightening response. Their base case is for the BoE to maintain its current rate stance through 2026, with possible rate cuts not expected until spring 2027, contingent on fiscal policy developments [1].
BNP Paribas offers a somewhat different outlook, forecasting that UK economic growth will slow to 1% in 2026 from 1.3% in 2025. They attribute renewed inflationary pressures to the ongoing war in Iran, projecting inflation to reach 3.2% year-on-year in 2026 and remain elevated at 3.1% in 2027, both above the BoE’s target. In contrast to ING’s expectation of a prolonged hold, BNP Paribas anticipates a 25 basis point BoE rate hike in the second half of 2026. They also expect 10-year gilt yields to remain elevated in 2026 before easing to 4.30% in 2027 as net supply declines and political risk premia fall. BNP Paribas further predicts that the British Pound will depreciate against the US Dollar into 2027, with GBP/USD seen at 1.32 by Q4 2026 [2].
Both sources agree that inflation will remain above the BoE’s target in the coming years, but they diverge on the likelihood and timing of future rate hikes. According to ING, the BoE is likely to remain on hold unless energy prices surge dramatically, while BNP Paribas sees sticky inflation and geopolitical risks as sufficient to prompt a rate hike in late 2026 [1][2].
No direct market reaction is discussed in the sources, but BNP Paribas highlights expectations for continued elevated gilt yields and a weaker pound, while ING underscores a clear division within the BoE between hawkish and dovish members, with recent data supporting a more cautious approach to tightening [1][2].
CONCLUSION
The Bank of England is expected to keep rates steady in the near term, with inflation forecasts remaining above target but below levels that would trigger immediate tightening, according to ING. However, BNP Paribas anticipates a rate hike in late 2026 due to persistent inflation and geopolitical risks. The outlook for UK monetary policy remains uncertain, with both inflation and growth dynamics closely watched by markets.