Berenberg expects the Bank of England to lower its key interest rate by the end of 2026 amid a drop in energy prices, barring a renewed increase, after the US and Iran reached a preliminary deal to end the war and reopen the Strait of Hormuz.
"A resumption of energy exports from the Persian Gulf would rule out a Bank of England (BoE) interest rate hike. The oil price futures curve is now broadly in line with the most benign of three scenarios that the MPC set out at its last meeting, in which CPI inflation fell to 1.5% in Q2 2028," Berenberg Senior UK Economist Andrew Wishart said in a Tuesday note.
Should the deal result in a recovery in energy supply, the research firm forecasts the BoE's monetary policy committee will gradually shift to a loosening bias from a tightening one and hold off on increasing the bank rate "for as long as possible."
"Even if Strait of Hormuz were to remain blocked, we doubt that the BoE would raise interest rates by much. In the benign scenario that now appears more likely, we think that the next move will be a cut, in December," Wishart noted.
The BoE is set to hold its next monetary policy meeting on Thursday. The bank rate currently stands at 3.75%.