BoE Preview: Banks expect 25 bps

The Bank of England (BoE) will publish its Interest Rate Decision on Thursday, June 22 at 11:00 GMT, and as the day approaches, below are the expectations anticipated by five major banks’ economists and experts.

The “Old Lady” is projected to raise interest rates by 25 basis points (bps), to 4.75%. Inflationary pressures may increase the likelihood of a 50 basis point interest rate hike.

Nomura

We expect the BoE to raise rates by 25 bps, then again in August and September. Last week’s strong labour market report reduces the likelihood of the Bank doing nothing in June, raises the risk of 50 bps. We would not be surprised to see a three-way split in the voting – two for no change, six for +25 bps and one member for +50 bps. We stick with our call of a September peak of 5.25% (+75 bps from here). There’s a chance that the MPC will try to massage down market pricing by talking about policy transmission lags, or more explicitly indicating that the bulk of the MPC’s work is done.

SocGen

The MPC is likely to hike Bank Rate by another 25 bps to 4.75% as risks of more persistent inflationary pressures are materialising. In fact, the overshoot in the labour market and inflation data were so bad we now expect the MPC to also hike in August, taking the peak in Bank Rate to 5%. The fundamental concern of the MPC is that a combination of excessively high inflation and a still-very-tight labour market will lead to persistently high inflation. Given the fact these concerns are only intensifying, there is a significant risk that further increases will be necessary after August.

Danske Bank

We expect the BoE to hike the Bank Rate by 25 bps. While we now expect a peak in the Bank Rate of 5.00%, we see current market pricing of a peak in policy rates of 5.75% as too aggressive. EUR/GBP is set to move higher on the statement as we expect the BoE communication to fail to live up to market expectations.

TDS

A 25 bps hike, bringing Bank Rate to 4.75%, is virtually guaranteed, and is our base case, with a 2-6-1 vote. We expect the MPC to keep its guidance roughly unchanged, but to explicitly push back against market pricing.

Rabobank

The BoE has some more wood to chop. We expect another 25 bps hike that will lift the policy rate to 4.75%. This has been our forecast since October 2022. The upside risks to embedded inflation we flagged previously have materialised. We, therefore, add two more 25 bps hikes to our forecasts and now see rates reaching 5.25% this summer. Past policy tightening has yet to pay off. The central bank may push back a bit against excessive market pricing, but can’t afford to change its guidance. Even as the BoE was among the first of the large central banks to engage in rate hikes, the UK’s inflation persistence means it will be among the last to complete its hiking cycle.