Bank of England policymakers are expected to leave interest rates unchanged next week, although it will be a very closely watched meeting as investors look for clues and hints about potential increases in borrowing costs later in the summer.
Market expectations are that the Bank's monetary policy committee will keep the base rate at 3.75% when it meets on 18 June.
Economists at UBS believe two MPC members could vote for a rate rise to 4%.
Huw Pill, the Bank's chief economist, has already backed a rate increase at the previous meeting and Megan Greene could be poised to join him after she made recent comments suggesting that a prolonged conflict in the Middle East could strengthen the case for tighter monetary policy.
In a recent speech, Greene said that "the case for hiking rates grows as the conflict wears on" and warned that higher energy prices could eventually feed through into broader inflation pressures.
Despite that, UBS expects the majority of the committee to favour keeping rates on hold. Recent inflation and labour market data have come in slightly below the Bank's forecasts, while surveys suggest household inflation expectations have eased and wage growth expectations remain broadly stable.
The decision will come against a backdrop of renewed market speculation about whether the Bank may need to raise rates again this year. Financial markets are currently pricing in more than one rate increase by the end of 2026.
UBS disagrees, arguing that the UK's weak economic backdrop and already restrictive monetary policy should allow policymakers to keep inflation under control without further tightening.
Instead, economist Anna Titareva expects the next move in rates to be down rather than up, forecasting quarter-point cuts in February and April 2027.
For investors, the vote split may prove almost as important as the headline decision, offering clues about how concerned policymakers are becoming over the inflationary impact of the conflict between Israel and Iran.
