Bank of England to Hold Rates Steady as Base Case, Conflict Risks Rise — Société Générale

Société Générale analyst Sam Cartwright has issued a fresh assessment, arguing that the foundation for the Bank of England's current wait-and-see stance is solidifying. The core logic lies in recent signs of easing in UK services inflation and a loosening labor market, two key variables that provide room to pause rate hikes. The base case forecasts that the Bank of England will hold the bank rate at 3.75% and maintain it through 2026 to keep suppressing underlying inflationary pressures.

Services Cooling and Labor Market Easing Offer Policy Breathing Room

According to the bank's analysis, the previously persistently elevated services price growth has eased recently, alleviating central bank concerns over inflation stickiness. Meanwhile, labor market tightness has moderated, with a decline in job vacancy rates and a potential peak in wage growth, both reducing the risk of a wage-price spiral. This gives policymakers reason to avoid further tightening and instead observe the lagged transmission of previous rate hike effects.

External Conflict Risks Add Uncertainty to the Outlook

Cartwright also cautioned that while the base path is one of stability, geopolitical conflict risks are rising, potentially introducing new uncertainties to the UK economic outlook. If external shocks cause energy prices or supply chain costs to surge again, the disinflation process could stall. However, under the current assessment framework, these risks have not yet altered the core judgment on the rate path, with patience remaining the optimal strategy for navigating a complex landscape.