UBS: ECB and BoE to Keep Rates Unchanged, Fiscal Support Buffers Energy Inflation
UBS forecasts the ECB and BoE will maintain current interest rates while offering hawkish guidance to address second-round effects of energy-driven inflation. It highlights unprecedented fiscal firepower since the pandemic and structural shifts—20% EV registrations and reduced energy intensity—as buffers against an energy price shock.
1. Central Bank Policy Outlook
UBS expects the European Central Bank and the Bank of England to maintain current interest rates while signaling readiness to act on persistent inflation pressures through hawkish guidance.
2. Second-Round Inflation Effects
Policymakers are focusing on inflation expectations and wage-price feedback loops rather than initial fuel price spikes, aiming to prevent broader inflation entrenchment in the euro area and UK.
3. Fiscal Firepower Support
Governments have deployed fiscal measures on a scale not seen since the pandemic, providing demand support that can offset weaker growth from higher energy costs.
4. Structural Energy Resilience
Investments in renewables and efficiency measures have reduced energy intensity, with electric vehicles accounting for 20% of new car registrations, bolstering economic resilience to price shocks.