BoE Preview: Forecasts from major banks

On Thursday, September 21 at 11:00 GMT, the Bank of England (BoE) is set to reveal its Interest Rate Decision. As the release time approaches, let’s take a look at the predictions provided by economists and researchers from 10 major banks.

The consensus among these experts points to an anticipated increase in interest rates by 25 basis points (bps), bringing them up to 5.50%. However, the unexpected decline in August inflation figures reported on Wednesday may influence the BoE’s Monetary Policy Committee (MPC) to consider signaling the conclusion of the current rate-hiking cycle.

Wells Fargo

We anticipate the BoE to deliver another 25 bps rate hike, bringing the policy rate to 5.50%. We believe the BoE stands out among G10 central banks largely due to UK inflation that has not been tamed. Growth prospects for the UK also remain dismal, with our forecast for recession to begin in Q4-2023. Considering this, we believe the British Pound will underperform through the end of 2023 and 2024. Inflation remains the primary concern for the BoE, with the July CPI YoY print coming in at 6.8%, and core CPI also remaining elevated at 6.9%. Though inflation has fallen from its 11.1% peak in October of last year, price growth is still a long way from the BoE’s 2% inflation target. Overall, we firmly believe that the BoE has more tightening to do before inflation is properly reined in.

Nomura

The end of the tightening cycle is approaching. We look for another 25 bps rate hike at the September meeting and expect those voting for 50 bps in August to revert to 25 bps at this meeting. We may also see more than one dissenter for unchanged rates. Should the Bank hike by 25 bps, as we expect, the debate should then turn to whether this will end up being the de facto end of the cycle. Our current call is for the Bank to raise rates again for a final time in November, though market pricing highlights the very real risk the tightening cycle will be done after this week’s expected hike. In that context, the MPC’s guidance bears careful monitoring. In August, the MPC repeated the need for further rate hikes, should inflation pressures persist. While we expect similar sentiments to be echoed this time, we also think the wording could be toned down.

Rabobank

We expect a 25 bps rate hike. That would lift Bank rate to 5.50%. Policymakers have recently entertained the possibility of an interest rate pause. The softer PMI prints and lower monthly GDP data raise concerns over a more entrenched slowdown – the million-pound question is whether this will be enough to get rid of similarly entrenched inflation. Further out, we have no more rate increases in our forecasts, but we do see rates remaining at elevated levels. Traders have reassessed their outlook and see rates peaking at 5.55%.

TDS

While upside surprises to wage growth and services inflation suggest some risk of a 50 bps hike, tepid growth and a rapid rise in the unemployment rate likely ensure policymakers will settle with a 25 bps increase. Forward guidance will likely continue to state that further evidence of persistence in core wages and service inflation would lead the MPC to hike further.

Deutsche Bank

We expect another 25 bps hike that would take the Bank Rate to 5.5% and see another, potentially final, hike in November.

ING

Markets are once again toying with the idea of a pause from the BoE. We certainly don’t rule that out. The central bank might be tempted by a Fed-style ‘skip’ this month, accompanied by strong hints that it could hike again in November. That’s not our base case, given both wage growth and services inflation are higher than forecasted back in August. We suspect the Bank will keep its options open for November, but ultimately we think September’s meeting will mark the peak in this hiking cycle.

SocGen

We still think it likely that the MPC will raise Bank Rate one last time by 25 bps to 5.5%. By the time of the November meeting, we believe the further loosening in the labour market and softening economic data are likely to convince the MPC that it has done enough to bring inflation under control. But if pay continues to overshoot the Bank’s forecast, there is a risk of even more tightening.