BoE Interest Rate Prep

On Thursday the 18th of September, 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 forecast the BoE to keep rates unchanged at 4%.

Investment Bank Commentary
Bank of America
We expect the Bank of England (BoE) to keep the Bank Rate on hold at 4.00% at its meeting next week. We expect a vote of 7-2 (two votes for a 25bps cut) with risks of a more dovish pattern. BoE’s gradual guidance, July inflation strength and hawkish August meeting support a hold in September. We expect the BoE to retain the careful, gradual and meeting by meeting bias. It is also likely to emphasize that monetary policy is not on a pre-set path, timing of future cuts is uncertain and depends on the extent of easing of underlying disinflationary pressures.

Barring upside surprises in next week’s data, we think risks are tilted to a slightly dovish tone vs. market pricing (which has reduced pricing of cuts for rest of the year). Next week, we expect data to show continued softening in wage growth, negative payrolls and inflation lower than the BoE’s forecast, which can allow for a slight dovish tone to keep some optionality to cut later in the year. But we note that the bar for the BoE to tolerate upside surprises is low. Genuine upside inflation surprises along with evidence of second-round effects via higher wage awards or inflation expectations can keep the tone cautious. We continue to expect cuts in Nov. and Feb. to 3.5% but highlight risks of a delay. We have conviction on terminal of 3.5% but timing is uncertain. Focus will be on the QT decision for upcoming QT year from Oct. 2025. We expect the BoE to slow down QT from the current £100bn pace to £60bn. We think QT is likely tightening monetary conditions. The BoE in August also noted that there is a risk that QT has a greater impact on market functioning in the gilt market. This keeps the door open for a QT slowdown. But at the margin, the MPR analysis showing a modest impact of QT on yields increases risks that the slowdown is a bit less than our base case.

With the November 26th Budget effectively the binary event of the year, it is hard to see how the September rate decision (in the absence of new forecasts) meaningfully shift the dial. With very little priced in for cuts this year, the obvious asymmetry is that a dovish MPC weighs on the pound. However, we think November 26th is looming large on the radar and the more substantive discussions on the policy rate happen after this once the BoE can incorporate the measures into their forecasts.

ING
A hawkish Bank of England decision in August has cast serious doubt on our call for another rate cut in November. Officials did lower rates over the summer, but the committee is heavily divided on the way forward. And the statement raised the possibility that the Bank is nearing the endgame on rate cuts. Financial markets are pricing a November cut at just 20% probability, though there’s a lot of key data to come before then. We think at least some of the following need to happen to keep a cut in play:

First, inflation needs to show further progress, and on headline CPI at least, that is unlikely before November. Food inflation is set to rise above 5% and this is a key preoccupation of rate setters, owing to its formative role in setting household inflation expectations. But the news isn’t all bad. The Bank ultimately cares most about service sector inflation, and we think there is scope for this to modestly undershoot the BoE’s forecasts before November. Rapidly slowing rental growth is a key driver.

Second, signs of further stress in the jobs market would clearly be a game-changer for the BoE’s thinking. Employment has fallen in eight of the last nine months, but the Bank is surprisingly relaxed about this. Perhaps that’s because the majority of the weakness is concentrated in hospitality, a sector acutely exposed to April’s payroll tax and minimum wage hike. Or because the surveys are looking a little brighter. Our base case is that we’ll see a further gradual cooling in the jobs market, which on its own is unlikely to move the dial too much on a November cut.