Bank of England to hold interest rates this year but strong minority see a hike: Reuters poll

By Jonathan Cable

LONDON, June 12 (Reuters) - The Bank of England will leave its key interest rate unchanged at 3.75% on June 18, according to all 65 economists polled by Reuters, who remained uncertain about what the central bank will do later this year.

Bank Rate will stay where it is through the rest of this year, according to median forecasts in the June 5 to 12 poll, but nearly 40% of respondents predicted at least one hike. Only six expected a 25-basis-point cut by end-year.

"We stick to our call for no change in Bank Rate this year. But the odds of a rate rise are increasing, in our view. The duration of the energy shock is becoming non-negligible," said Sanjay Raja at Deutsche Bank.

"And the spillover of price pressures is also becoming uncomfortable. Should energy prices remain stuck at current levels, we see risks skewed to some tightening of Bank Rate."

Governor Andrew Bailey said earlier this month it was important to get inflation back to target and give households confidence about the central bank's ability to do so.

Fellow BoE policymaker Megan Greene said last week she saw a growing case for raising interest rates as the Iran war drags on and boosts the chance of wide-ranging rises in prices across the economy.

The European Central Bank lifted its benchmark deposit rate by 25 basis points to 2.25% on Thursday, as expected.

PRICE PRESSURES

British inflation was seen peaking at 3.6% towards the end of this year, getting close to double the central bank's 2% target. It will average 3.3% across 2026 but ease to 2.6% in 2027.

Prices have jumped as the U.S.-Israeli war with Iran led to soaring energy costs and disrupted shipping lines through the key Strait of Hormuz. Still, hopes grew on Friday for peace after U.S. President Donald Trump said a deal could be signed as soon as this weekend.

"Our base case is the disruption continues through June and July and that means oil prices peak back above $100 a barrel, maybe up to $120," said James Smith at ING.

"In terms of growth, a lot is because of the strength we have had over the first few months of the year that 'flatter' the annual number."

Economic growth will be 1.0% this year - revised up from a 0.8% projection in a May poll - and 1.1% in 2027 before expanding 1.5% in 2028, the poll found.

Earlier this month the OECD nudged up its 2026 forecast for Britain to 0.9% from the 0.7% it predicted just after the Middle East conflict broke out.

Firms in the country's dominant services industry suffered a small fall in activity in May as the strains of the Iran war pushed up costs sharply, a key survey showed last week.

The economy contracted 0.1% in April, its first monthly drop since August, official data showed earlier on Friday.

(Other stories from the Reuters global economic poll)

(Reporting by Jonathan Cable; polling by Jaiganesh Mahesh and Shaloo Shrivastava; Editing by Ross Finley and Louise Heavens)