Recent analyses from Commerzbank and Nomura indicate that the European Central Bank (ECB) is unlikely to pursue renewed rate hikes, even as energy prices have risen. Commerzbank’s Dr. Vincent Stamer notes that both the bank’s Euro area inflation projections and ECB staff forecasts are broadly aligned under a mild Iran War scenario, suggesting that only a significant escalation in the Middle East would drive inflation high enough to warrant further rate hikes. The probability of additional ECB hikes has therefore fallen markedly, despite possible underestimation of indirect energy effects in ECB projections for the coming year [1].
Nomura economists argue that the latest energy price surge will act as a larger drag on Euro area growth than as a persistent inflation shock. They highlight weaker labour markets in Northern Europe, limited fiscal space, more spare capacity, and slowing wage growth as factors that should dampen medium-term inflation. While near-term price pressures remain under scrutiny, Nomura points out that energy prices are elevated but less so than in 2022, with European gas prices peaking at just over €60/MWh recently compared to €340/MWh in 2022. The IMF estimates the euro area output gap in 2026 will be around -0.2% of potential GDP, versus +0.8% in 2022, indicating a weaker growth outlook. Central banks’ previous tightening measures have contributed to a slowing inflation trajectory across Europe ahead of the US/Iran war, though some stickiness in services inflation persists [2].
In the UK, ING’s James Smith reports that inflation rose to 3.3% in March due to higher fuel costs and is expected to move towards 3.5–4% later in 2026, driven by July’s increase in household energy bills. ING’s base case assumes oil prices between $90-100/bbl and natural gas averaging 55 EUR/MWh, leading to a forecasted inflation peak slightly above 4% in August/September. However, Smith sees no Bank of England (BoE) rate hikes this year, as the bar for a hike has not been met. If wholesale prices remain stable, the July price cap is likely to rise by only 10-15%, with much of that increase retracing in October, keeping inflation around 3.5%. ING expects the BoE to keep rates on hold, especially given a fragile jobs market [3].
According to [1], the ECB may be underestimating indirect energy effects, but this is unlikely to be sufficient grounds for raising rates. Meanwhile, [2] emphasizes that the growth hit from energy prices outweighs lasting inflation risks, and [3] underscores that UK inflation, while elevated, is not expected to trigger rate hikes unless it spikes materially above 4%.
CONCLUSION
Analysts from Commerzbank, Nomura, and ING agree that recent energy price increases are unlikely to prompt renewed rate hikes from the ECB or BoE. While inflation remains a concern, especially in the UK, the broader economic outlook and central bank projections suggest a preference for holding rates steady. Market participants should monitor energy price developments and inflation trends, but current forecasts point to limited monetary policy changes in the near term.