BoE Interest Rate Prep

On Thursday the 19th of May, at 07:00 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 leave rates unchanged at 4.25%.

Investment Bank Commentary

Wells Fargo
The Bank of England (BoE) is set to announce its latest policy decision next week. We, as well as consensus economists, expect the central bank to hold its policy rate steady at 4.25%. Since the BoE’s last meeting in May, April inflation data surprised to the upside, with headline inflation rising to 3.5% year-over-year. Core and services inflation also remained elevated at 3.8% and 5.4%, respectively. While much of the increase appeared to be attributable to seasonal distortions and one-off energy and water price adjustments, underlying price pressures persist. At the same time, this week’s labor data came in weaker than expected, showing a decline in wage growth and a modest uptick in the unemployment rate. Taken together, the mixed inflation and labor signals are likely to keep the BoE on hold at next week’s meeting.

Looking ahead, we maintain our expectation for a 25 bps policy rate cut at the BoE’s August meeting. The uncertain growth outlook, given the substantial tariff changes, coupled with still-slightly-elevated wage and price pressures supports a gradual and cautious path of monetary policy easing. Should incoming data continue to show weaker GDP growth, as it did with April’s monthly GDP print, and a gradual deceleration in wage growth persist, it could tilt the risks toward a more regular pace of rate cuts at some point in the future.

ING
We expect the Bank of England to keep rates at 4.25% on 19 June, but some disappointing jobs numbers, lower wage growth and a more optimistic outlook for services inflation mean we expect cuts in August and November.
The Bank of England is highly unlikely to cut rates this month, but should it?

An increasingly bad run of jobs data, which has seen employee numbers fall for 9 out of the past 10 months at an ever-increasing rate, certainly raises the possibility that the Bank needs to speed things up a bit. The hawks at the BoE would point to wage growth, which, despite the material cooling in hiring, has remained stubbornly high. But that is starting to change. Private sector pay growth has fallen from 6% to almost 5% in the space of a couple of months. That’s partly a base effect story, but it also reflects a genuine cooling in pay pressures, too. It’s running roughly half a percentage point below the Bank’s most recent May forecasts.

Admittedly, inflation generally still looks problematic – at least from the headline numbers. Overall CPI is at 3.5% and is set to stay north of 3% for the rest of the year. Again, the hawks at the BoE – notably Chief Economist Huw Pill – are wary about this triggering a change in price-setting mentalities among both firms and consumers. This is borne out of the experience of 2022, where higher gas and food prices seeped into the broader service sector.

Services inflation indeed remains far too high, having risen almost a percentage point to 5.4% in April. Yet that rise was almost entirely due to an increase in road tax, as well as the timing of Easter. The Office for National Statistics has since conceded that road tax was overestimated, and adjusting for that, we think services inflation will be back at 4.6% in May. Over the coming months, the contribution from rents should decrease materially. And once the impact of big April price hikes filters out of the annual comparison, it should fall well below 4% next spring.