Bank of England: No hikes?

As expected, the Bank of England held rates at 3.75%, with a 7–2 vote split. The sharp decline in energy prices has increased the likelihood that inflation will peak well below the most benign scenario outlined in the April Report. Even so, the MPC continues to view risks to energy prices as skewed to the upside, and it remains too early to assess whether second-round effects will materialise. We think current economic conditions do not appear particularly conducive to such effects. As such, we have removed our call for a rate hike, even as the market prices around 31bp of tightening by year-end.