The Bank of England is likely to leave interest rates on hold on Thursday, but the bigger story is a shift in tone that leaves a future rise looking less far-fetched than it did in the summer, according to UBS.
Dean Turner, an economist at the Swiss bank, said the Monetary Policy Committee was widely expected to keep Bank Rate unchanged. Investors, though, should focus on what policymakers signal about the future. The odds of a near-term cut are fading, he argued, and the chance that the Bank's next move is up rather than down is becoming harder to ignore.
That marks a change from July, when the committee held rates after a split vote against a backdrop of easing inflation, moderating wage growth and a cooling jobs market. Since then, the balance of risks has turned less comfortable.
The clearest shift has been the renewed climb in energy prices. Escalating tensions in the Middle East have pushed oil higher, reviving inflation worries just as central banks were growing more confident that price pressures were fading. Higher energy costs do not automatically warrant higher rates, Turner said, but recent MPC comments suggest a growing risk that they feed into inflation expectations and wider pricing.
The economy, meanwhile, continues to hold up better than feared, with the July GDP figures reinforcing the picture.
Turner said this week's meeting would be too soon for any abrupt change, with policy already restrictive and rising global bond yields tightening conditions further. He had long expected the next move to be a cut early next year, but conceded that view now looks optimistic as central banks globally turn more hawkish. Last week the European Central Bank raised rates and signalled more may be needed.
A return to hikes is not his base case, but it is no longer one he rules out.
