European Daily: BoE Recap—Content with Holding

Research evidence excerpt

European Daily: BoE Recap—Content with Holding

Goldman Sachs European Daily

diminished – although several emphasised ongoing uncertainty in their individual

paragraphs – and noted that tighter financial conditions were “already acting to reduce

inflation over time”.

One exception was Mann, who suggested that upside risks to inflation “were more

prominent” but argued that there was still time to assess before raising Bank Rate given

that tighter policy would have a “quick effect” on inflation. On the other side of the

debate, Taylor argued that “lower rates could be preferred” if the conflict resolution

holds.

The dissenters framed their votes as “part of a risk management strategy”. Greene

emphasised that there is “significant uncertainty” about the magnitude of second-round

effects and suggested that the MPC should “insure against the possibility” that these

effects turn out to be larger than expected. Pill argued that a “prompt but modest”

increase in Bank Rate would leave the MPC “well-placed to address the significant

uncertainties” that it faces, and so was the “most robust” policy response.

The Path Ahead

We think that today’s communications suggest that the Committee is comfortable

maintaining Bank Rate at 3.75% as things stand, while wanting to retain optionality to

tighten policy if the energy shock re-escalates or if there are signs of stronger

second-round effects.

Our commodity strategists have recently lowered their oil price forecast and now see

Brent crude at $80 per barrel at the end of the year. Given lower energy prices and

downside surprises in the recent data, we have reduced our 2026Q4 headline inflation

forecast to 3.3%, close to the updated BoE estimate of “a little over 3¼%” mentioned in

the minutes.