BoE Interest Rate Prep

On Thursday the 8th of May, at 07:02 ET, the Bank of England reveals their decision from it’s latest monetary policy meeting, and releases the rate statement.
Here are some views on what to expect.

General Expectations
Expectation from Analysts and Market Participants alike forecast the BoE to reduce rates by 25bp. Going from 4.5% to 4.25%

Commentary
Wells Fargo
When Bank of England (BoE) policymakers meet next week, we—along with the consensus—expect that they’ll announce a 25 bps cut to the policy rate, bringing it to 4.25%. This would come after a pause from their February announcement and continue the pattern of gradual BOE monetary easing at a 25-bps-per-quarter pace of cuts since mid-2024. While Bank of England interest rates are still clearly restrictive and U.K. economic growth was sluggish in the second half of 2024, the gradual pace of BoE rate cuts was driven by a similarly gradual declaration in wage growth and underlying inflation measures, such as services inflation. Some resilience in U.K. economic activity in early 2025 may have also reinforced the BoE’s caution regarding the pace of monetary easing.

Looking forward, sentiment surveys point to a renewed slowing in growth ahead. The U.K composite PMI dipped below 50 in April, entering into contractionary territory, given weak output in the manufacturing and service sectors, although the cost and price aspects of that PMI survey still pointed to some inflationary pressures. Considering these conflicting signals, for now, we expect the BoE to continue to take a measured approach to monetary easing. Finally, we will be assessing the BoE’s updated economic forecast in its Monetary Policy Report, the first since the Liberation Day tariffs were announced. We think it would take an especially sharp downgrade in the growth outlook, or medium-term inflation forecasts well below the 2% target, for market views to shift toward a more accelerated pace of Bank of England easing.

ING
The Bank of England is poised to cut rates at its 8 May meeting, and markets are pricing a faster pace of easing thereafter. We’re less convinced the Bank will deviate from its once-per-quarter cutting rhythm, but we do think it could cut rates to a lower level than investors are currently expecting.
We expect:
An 8-1 vote in favour of a 25bp rate cut (one member voting for a 50bp cut).
No change in forward guidance. Bank to reiterate that future cuts are likely to be “gradual and careful”.
Cuts to the Bank’s 2025 inflation forecast on lower energy prices and upgrades to 2025 GDP growth given the better run of data in 1Q. No major changes to the medium-term outlook.

On inflation, the story hasn’t changed all that much since the Bank’s March meeting. Yes, oil and natural gas prices are lower, which will prompt a modest downgrade in the BoE’s inflation forecast. We see headline inflation peaking around 3.5% later this year (2.6% currently). And at the margin, that should mitigate some of the Bank’s concerns about higher energy costs feeding into services, like it did after the 2022 gas price shock. But services inflation is still an issue. At 4.7%, it is 0.2pp below where the Bank had predicted in its February forecasts, but it has been bouncing around 5% for some time now. And that’s much too high.

That data won’t be available at the May meeting, and the Bank won’t want to commit to anything before it sees it. We therefore don’t expect any major changes in the BoE’s language this month. It’s unlikely to change its forward guidance, which simply points to “gradual and careful” further easing. Beyond this month, however, things could start to change. Services inflation should start to come noticeably lower later this quarter; we expect it to fall to 4.2% in June. Our measure of core services inflation, excluding rents, which is arguably a better gauge of underlying service-sector price growth, is already down at 4%. That should enable the Bank to become more relaxed about inflation by the Autumn. At the end of last year, our view was that this would enable the Bank to speed up the pace of cuts, just as markets are starting to price. The messaging from officials so far this year has made us less convinced of that, and instead, we think the path of least resistance is for the Bank to keep cutting rates once per quarter. That process could, however, continue for longer than markets are now pricing. We think Bank Rate will fall to 3.25% by mid-2026 and possibly even a little lower than that.