TD Securities strategists highlight that the Bank of England (BoE) kept Bank Rate at 3.75% with a 6-3 split, signalling slightly more hawkish rhetoric but continued comfort with existing tightening. The July Monetary Policy Report shows a more benign inflation and growth outlook, yet risks remain skewed to the upside. They still expect Bank Rate on hold through September and an easing cycle starting in H1 2027.

BoE stance, projections and risks

"However, the softer inflation profile in these projections and continued evidence of underlying disinflation give us enough comfort in our call for Bank Rate to remain unchanged in September, barring a material jump in energy prices or broader commodity markets."

"July messaging was modestly more hawkish than June, seeing the Committee become more explicit that inflation risks are tilted to the upside and that policy may need to react before second-round effects are fully evident, while also broadening its concern beyond energy to risks from AI-related supply constraints, tariffs and food prices."

"As it stands, the Committee shifted slightly toward the hawks, but the dominant message remained that existing financial tightening provides sufficient restraint for now while the MPC waits for clearer evidence on inflation persistence."

"At the same time, the MPC remains uncomfortable with the upside risks around energy prices and inflation persistence, leading it to skew risks to the upside even as the central forecast has improved."

"While the July projections are more benign than those published in April, the MPC remains concerned about the uncertainty surrounding the Middle East conflict and the inflationary implications of the resulting energy shock."

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