March 13 (Reuters) – BofA Global Research, which had expected the Bank of England to begin cutting rates in March, has now pushed its call to June, saying rising energy prices have revived inflation risks and clouded the policy outlook.
The Wall Street brokerage, which had earlier pencilled in a cut in March and June, now expects quarter-point reductions in June and September this year.
The shift comes as higher energy prices, driven by geopolitical tensions in the Middle East, heighten uncertainty around inflation and the BoE’s rate-cut trajectory.
The conflict has upended near-term expectations for inflation, which slowed to 3.0% in January and had been projected to drift toward the BoE’s 2% target in the coming months.
Meanwhile, Brent crude is back above $100 a barrel, after nearly touching $120 earlier this week.
“We could see an earlier cut in April if energy prices move reversely by then, but risks are for further delays and lesser number of cuts this year if the conflict is prolonged,” BofA said.
The BoE is likely to maintain its easing bias but will stress that uncertainty has increased, while the bar for any policy tightening remains high, it added.
Goldman Sachs, Standard Chartered and Morgan Stanley have also delayed their Bank of England easing forecasts, now expecting the first cut in the second quarter as the Iran war lifts energy prices and inflation risks.
“Judgement around further policy easing will become an even closer call,” BofA said in a note on Thursday, pointing to downside risks for growth and a weaker labour market as the key factors shaping the central bank’s decisions.
Britain’s inflation rate could end the year at around 3%, rather than the roughly 2% rate assumed by the country’s fiscal forecasters, if energy prices remain at current levels, an official at the Office for Budget Responsibility said.
(Reporting by Akriti Shah in Bengaluru; Editing by Sumana Nandy)
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