Interest Rate Speculation Intensifies Amid Middle East Tensions

Standard Chartered and Morgan Stanley have revised their forecasts, now anticipating the Bank of England will delay interest rate cuts until the second quarter due to inflationary pressures stemming from the Middle East conflict. The surge in oil and gas prices, rising around 50% and 90% since February, has elevated inflation risks, leading to potential adjustments in central banks' easing strategies, including the BoE.

The market is currently nearly certain the BoE will maintain rates this month, as data from LSEG indicates a 98% likelihood. The British brokerage postponed its March cut to the second quarter, projecting a reduced terminal rate of 3.25% by 2026's end. Concerns over prolonged energy price hikes could exacerbate eurozone inflation, as per StanChart's analysis.

Morgan Stanley revised its estimates, now expecting the BoE to ease in April, followed by further cuts in November and February 2027. Both institutions highlight the necessity of monitoring inflation risks closely, especially if energy price shocks prove persistent. Economic forecasts suggest significant impacts on UK GDP growth if oil and gas prices fluctuate.