UK: BoE seen on hold as prices rise – ING

ING‘s James Smith notes that UK inflation rose to 3.3% in March on higher fuel costs and is likely to move towards 3.5–4% later in 2026, helped by July’s increase in household energy bills. Using INGs Oil and natural gas assumptions, he expects inflation to peak slightly above 4%, but still sees no Bank of England (BoE) rate hikes this year.

Inflation seen peaking near four percent

“UK inflation rose in March on higher fuel prices, and a forthcoming increase in household energy bills this July is likely to take it towards 3.5-4%, depending on where wholesale natural gas prices go next. We dont think the bar for a Bank of England rate hike has been met.”

“On ING‘s base case for oil and natural gas prices – which has the former staying between 90-100 USD/bbl in the second and third quarters of the year, and the latter averaging 55 EUR/MWh this quarter – we’d expect UK inflation to peak fractionally above 4% in August/September, but generally bouncing around a 3.5-4% range in the second half of the year. Thats consistent with a 25% rise in household electricity/gas bills when the Ofgem price cap is next updated in July. And these forecasts assume some uptick in food inflation later this year.”

“If wholesale prices stay where they are today, the July price cap is more likely to rise by a mere 10-15% and retrace much of that increase in October. Thats consistent with inflation peaking around 3.5%.”

“So long as inflation doesnt spike materially above 4% – a level above which the Bank has identified as being more likely to trigger a persistent bout of price pressure – we think the BoE will prefer to keep rates on hold this year.”

“And against a fragile jobs market, we dont expect a rate hike next week, or this year.”