UBS expects the Bank of England to keep interest rates unchanged at 3.75% at its meeting on 17 September, in line with market pricing.
The bank's economists forecast the Monetary Policy Committee will repeat the 6-3 vote split seen in July, with Huw Pill, Megan Greene and Catherine Mann again pushing for a quarter-point hike.
UBS said the Committee's tone is likely to turn more cautious, citing the recent escalation in the Middle East and rising energy prices.
Elevated energy costs sit alongside signs of stable wage and inflation expectations, a combination UBS said leaves policymakers pulled in two directions.
The bank still expects the Bank of England to hold rates for the rest of 2026, followed by two cuts in 2027, though it flagged a rising risk of a pre-emptive hike if energy prices stay elevated.
UBS named 5 November as a pivotal date, since that meeting follows the Autumn Budget on 28 October and will include updated economic projections.
On the currency, UBS remains constructive on sterling and targets the euro at £0.8500 by year-end, supported by favourable capital flows.
The bank flagged tactical weakness in the pound running into the Budget, given pressure on the public finances from higher gilt yields, with risk skewed towards £0.8650.
On quantitative tightening, UBS expects the pace to slow to £50 billion between October 2026 and September 2027, down from £70 billion currently, driven by lower bond redemptions.
Active gilt sales are expected to hold steady at £20 billion a year.
