BoE Interest Rate Prep

On Thursday 20th of March at 08:00 ET, the BoE is set to release the results of their latest monetary policy meeting.
Here are some views on what to expect.

Commentary
Bank of America
We expect the Bank of England (BoE) to keep the Bank Rate unchanged at 4.50% at its meeting next week. We expect a vote of 7-2 for the hold, with Dhingra and Mann voting for a 25bps cut. Recent comments from doves Taylor and Ramsden suggest that they have likely turned more neutral and are likely on board with the gradual path. The evolution of data since the February meeting, BoE’s “gradual and careful” guidance and hawkish forecasts supports the case for a hold in March. In February the BoE stuck to its gradual guidance, added the word careful to reflect uncertainty, and made hawkish revisions to its inflation forecasts along with a hawkish read of recent growth weakness (i.e. somewhat driven by supply). Since then, UK inflation has been stronger than expected, with January headline inflation 20bps above the BoE’s forecasts, even though services inflation at 5.0% was 20bps below the BoE’s forecast. Private regular wage growth has been high, rising to 6.2% in the three months to December, slightly weaker than the BoE’s forecast (6.3%). However monthly pay increases jumped up again (from 0.15%m/m in November to 0.54%m/m in December), pointing to elevated wage pressures.

GDP growth was stronger than expected in Q4 at 0.1%, higher than the BoE’s forecast of -0.1%. It is possible the BoE revises up its Q1 2025 forecast (at 0.1%) given favourable carryover to Q1 GDP from the strong pickup at the end of last year, but much depends on January monthly GDP out this week. Unemployment has been flat at 4.4%,  lower than the BoE’s forecast of 4.5%. While risks to the labour market remain on the downside (we get another labour market print on the day of the BoE meeting), the official data has been stronger than expected and we are not seeing a sharp labour market slowdown. If anything, we might be at the start of a turn in sentiment (consumer confidence and REC employment have picked up from low levels recently along with a rise in monthly GDP/ retail sales). Stronger inflation, elevated pay growth and better than expected growth/ labour market data supports the case for a hold in March.

ING
We expect the Bank of England to keep rates on hold at 4.5% this Thursday. We expect seven officials to vote in favour of that decision, with two dissenters (Swati Dhingra and Catherine Mann) voting for a rate cut. Mann does believe the outlook has materially shifted. In recent comments, she has talked about the risk of “non-linear” falls in employment, in response to hefty tax hikes coming through for employers next month. The vibes surrounding the jobs market have gotten dramatically worse. Survey after survey has pointed to weaker hiring intentions, while talk of layoffs has increased. For now, though, that negativity hasn’t shown up in the hard data. Companies are required to report redundancies to the government via an HR1 notification. These haven’t shown any discernible uptick so far.
The wider focus at the Bank will stay squarely on inflation. The simple fact is that wage growth is at 6%, while services inflation is bouncing around 5%. That’s an uncomfortable position for the BoE, even if both of those numbers should come lower through this year. Wage growth should gradually tick lower given the jobs market has cooled appreciably over recent months, irrespective of the forthcoming tax hike. Services inflation should be closer to 4%, or perhaps even below, by the summer, on account of more benign annual price hikes this spring.

Our base case is that the Bank continues on its current course of gradual rate cuts, with moves in May, August and November. We don’t rule out a faster pace though that would require more obvious and abrupt signs of weakening in the jobs market. We doubt the government’s Spring Statement on 26 March, where some spending cuts are widely expected, will dramatically change the story for the Bank. Markets are still a tad reluctant to bake in those three remaining rate cuts in 2025 fully; 55bp of easing is priced by December. And despite the decent repricing lower in US rates over recent weeks, investors don’t expect rates to go any lower in 2026 or beyond. Markets are pricing a floor for Bank Rate of 3.9%, compared to our own forecast of 3.25%, which we expect to be reached by the summer of 2026.