Societe Generale economists highlight that Iran‑related energy fallout is pressuring households and growth, with limited fiscal space for large support. They expect the BoE to leave rates unchanged in a unanimous vote this week and to drop its easing bias, as the MPC grapples with uncertainty over the persistence of the current energy shock.
BoE cautious with limited fiscal space
“Last week in the UK, fallout from Iran continued to dominate the news cycle. To counter the rise in heating oil prices, the government announced a £50mn support package, although this is unlikely to have a material effect on CPI.”
“Given the risk of another sharp rise in bills in 3Q26 and the cost of living remaining a key concern for voters, the government may be under pressure to prevent large increases in energy bills. However, the £24bn headroom against the stability fiscal rule has already likely been eroded by £7bn due to higher Bank Rate and gilt yields, leaving limited scope to materially increase borrowing, although a one‑off support package that ends before the fiscal target year of FY29–30 may not alter the headroom much.”
“This week in the UK, the BoE meeting will likely take centre stage. The key question of how persistent the current energy shock will be means the MPC will be flying as blind as the rest of us.”
“Given this uncertainty, we expect the MPC to remain on hold in a unanimous vote, and the easing bias in the guidance is likely to be dropped.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/boe-mpc-to-remain-on-hold-as-energy-shock-bites-societe-generale-202603160949
