Chris Cheverall, head of UK at CMC Markets, said: “Just a few weeks ago, the inflation story looked to be moving firmly in the Bank of England’s favour.
“Renewed tensions in the Middle East have complicated that picture, raising fresh questions over whether higher energy prices could slow or even reverse the recent progress on inflation.
“For much of this year, markets had become increasingly confident that the next move in UK interest rates would be down as inflation eased, however energy price volatility is testing that confidence.
“The Bank can’t control oil prices, but it has to stop a temporary rise in energy costs becoming embedded in wages, business pricing and inflation expectations.
“That’s why investors should pay closer attention to the Bank’s language than the decision itself. If policymakers signal they’re prepared to keep policy tighter for longer, or even raise rates again if inflation proves more persistent, markets will have to rethink one of the biggest assumptions underpinning asset prices this year: that the next direction for UK interest rates is lower.”
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