March 13 - BofA Global Research has revised its forecast for when the Bank of England (BoE) will begin lowering interest rates, shifting its earlier expectation for a March cut to June. The Wall Street firm now anticipates two quarter-point cuts, scheduled for June and September this year.
The adjustment follows a rebound in energy prices that market participants attribute to heightened geopolitical tensions in the Middle East. Those price moves have renewed concerns about inflation and clouded the outlook for BoE policy timing.
Inflation in Britain had slowed to 3.0% in January, and prior projections had suggested a gradual move back toward the BoE's 2% target in the months ahead. The recent increase in energy costs, however, disrupted those near-term expectations. Brent crude has climbed back above $100 a barrel after nearly reaching $120 earlier in the week.
In its note, BofA said an earlier easing in April remains possible if energy prices reverse before then, but emphasized that risks now point to further delays or a smaller number of cuts this year if the conflict persists. The bank added that while the BoE is likely to retain an easing bias, it will underline that uncertainty has risen and that the threshold for any tightening remains high.
Other major banks have updated their forecasts in response to the same dynamics. Goldman Sachs, Standard Chartered and Morgan Stanley have likewise postponed their expectations for the first BoE cut into the second quarter, citing elevated energy prices and the associated inflation risks stemming from the Iran war.
BofA highlighted that judgement on additional policy easing will become more finely balanced going forward. The firm pointed to downside risks to growth and a softer labour market as central factors that will influence the BoE's decisions.
Separately, an official at the Office for Budget Responsibility (OBR) noted that if energy prices stay at current levels, Britain’s inflation rate could finish the year nearer 3%, rather than the roughly 2% assumed by the country's fiscal forecasters. That projection underscores the potential for sustained upward pressure on prices should energy market conditions remain elevated.
Implications
- Monetary policy timing has become more uncertain, with major banks aligning around a later window for the first BoE cut.
- Energy markets - especially oil - are central to the revised outlook, shaping inflation projections and policy response.
- Downside risks to growth and a weakening labour market are identified as key determinants for future easing decisions.