BoE Preview: Forecasts From Four Major Banks

Wells Fargo

“For May, the consensus forecast (and Wells Fargo forecast) is for the BoE to deliver another 25 bps hike, which would take the policy rate to 1.00%. We expect the BoE’s economic projection to include an upward revision to its CPI inflation forecast and a downward revision to its GDP growth forecast. For market participants, the focus will be on how much emphasis the central bank puts on slower growth versus faster growth, and whether it softens its prior guidance that ‘some further modest tightening in monetary policy may be appropriate in the coming months.’ That could offer insight into whether the BoE continues to hike rates at a 25 bps per meeting pace or shifts to an even slower pace of tightening.”

CitiBank

Citibank “We expect the BoE MPC to deliver a fourth 25bp back-to-back hike this week, taking the cash rate to 1.0%. Active QT may also begin in small size in June. Cost pressures remain intense, and in a context of a tight labor market, it is unlikely the MPC concludes the immediate risks to inflation expectations are yet contained – despite a weak medium-term forecast. However, the risks here seem skewed to the dovish side, with two dissenters likely to back holding the stance steady. For now, we expect a pause in the current tightening to come only in August, once weak demand has arrested the inflation pass-through, and the labor market has softened. However, with UK data now deteriorating at an accelerating rate, the team does not rule out an earlier pause or a dovish surprise (especially on guidance) this week.”

SocGen

“The MPC is likely to believe that it has no choice but to act decisively to prevent higher inflation becoming embedded in wage demands, despite the probable substantial hit to demand from the cost of living crisis. We no longer think the MPC will be prepared to pause at the forthcoming meeting to assess the damage from the crisis. Instead, it looks set to increase Bank Rate by 25bp at this meeting and every subsequent meeting up to and including November this year, taking it to a peak of 2%.”

ING

“The BoE has hiked three times so far and a fourth increase looks like a near-certainty. But despite talk of a more aggressive 50bp move, we suspect that’s unlikely. It’ll be interesting to see if any committee members join Jon Cunliffe, who last month was the sole voter for no change in rates. More likely though we’ll get another 8-1 vote in favour of the hike. We expect the rate hike on Thursday to be followed by another in June, but after that, we suspect policymakers will be inclined to pause – or at the very least slowdown – the pace of rate rises. That suggests markets, which expect roughly another six hikes this year, are likely to be overestimating the amount of tightening required.”