Why the Bank of England faces significant hurdles before raising interest rates

The Bank of England Faces Heightened Sensitivity to Energy Price Increases

Among major central banks, the Bank of England appears particularly responsive to fluctuations in energy costs—a view widely reflected in market sentiment. Recent shifts in short-term interest rate forecasts have been more pronounced in the UK than in the eurozone or the United States. Whereas investors previously anticipated a 50 basis point rate cut in 2026 before the Iran conflict, they are now factoring in a potential 20 basis point rate increase. The sharp rise in inflation experienced in 2022 remains a vivid memory for many. If current energy prices persist, inflation could climb to approximately 3.5% by late summer.