BoE Interest Rate Prep

On Thursday the 18th of December, 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 cut by 25 bp to 3.75%, from the prior rate of 4%.

Investment Bank Commentary
Wells Fargo
Next week, when Bank of England (BoE) policymakers meet, we expect them to cut the Bank Rate by 25 bps to 3.75%. The BoE’s most recent monetary policy statement struck a more dovish tone, reiterating its expectation of “a gradual downward path” for the Bank Rate and acknowledging both the weakness in economic activity and progress toward disinflation. Since then, incoming UK data have supported the case for policymakers to resume their gradual monetary easing approach. Disinflation progress has been notable across headline and core CPI measures. The latest October print showed broad-based declines: Headline inflation fell to 3.6% year-over-year, core inflation slowed to 3.4%—marking its third consecutive monthly decline—and services inflation, which tends to be sticky and is closely monitored by the BoE, dropped to its lowest level for this year at 4.5%. Wage growth tells a similar story, with the latest reading slowing to 4.8% year-over-year after a brief uptick in August, while wages excluding bonuses have been steadily cooling since the start of the year. Economic growth data have also been soft. October’s monthly GDP print contracted for the second consecutive month by 0.1% month-over-month, missing expectations for an upside surprise. In addition, the last BoE meeting preceded the release of the Autumn Budget, which has since provided greater clarity on the fiscal outlook.

Taking these factors into account, we maintain our view for continued rate cuts into the new year, following a gradual quarterly pace. We forecast the BoE to cut rates next week and continue reducing the policy rate by 25 bps per quarter through Q2-2026, reaching a terminal rate of 3.25%.

Reuters
The Bank of England looks set for a knife-edge vote on interest rates this week with Governor Andrew Bailey expected to change his view and tip the balance for a cut.
Barring a major surprise in economic data ahead of Thursday’s announcement, the BoE’s policymakers will vote 5-4 to lower the central bank’s benchmark rate to 3.75% from 4.0% according to most analysts polled by Reuters. That would be the first reduction since August and would take borrowing costs to a three-year low. With Britain’s inflation rate still the highest among the Group of Seven economies, BoE policymakers voted 5-4 in November to keep borrowing costs on hold.

Public comments from Monetary Policy Committee members since then have suggested that they remain split on whether job losses or inflation pressures pose the biggest risk to the economy. However, Bailey has spoken only briefly about interest rates since he hinted last month at the possibility of voting for a rate cut if there was evidence of falling inflation.
Subsequently, Britain’s headline inflation rate eased to 3.6% in the 12 months to October – still a long way above the BoE’s 2% target but its first fall since May.

Data for November due on Wednesday – a few hours before the MPC’s vote – is expected to show inflation edged down further to 3.5%, according to the Reuters poll.
Similarly, pay growth has slowed and is expected to ease off again in fresh figures on Tuesday. On the same day, S&P Global’s survey of purchasing managers will give an early sense of how businesses are responding to finance minister Rachel Reeves’ budget on November 26. Andrew Goodwin, chief UK economist at Oxford Economics, said Thursday’s rates decision was probably a much closer call than the 90% probability of a cut which is priced by investors.

“But it’s notable that Bailey has chosen not to push back against expectations of a December cut,” Goodwin said.
With Britain’s inflation rate still close to double its 2% target, the BoE has been unable to move as quickly as the European Central Bank to bring down borrowing costs. The ECB’s benchmark borrowing rate now stands at 2%, half that of the BoE.

Societe Generale
We expect the BoE to deliver a 25bp rate cut at its December meeting, likely in a narrow 5- 4 vote, bringing Bank Rate down to 3.75%. Already in November, four members favoured a cut, while Governor Bailey, the swing voter on the Committee, signalled that he preferred to wait in order to assess the Autumn Budget and gather stronger evidence of disinflation. Since then, data has largely confirmed the disinflationary trend, and we don’t believe the Budget will materially alter the monetary policy outlook. Both factors should push Bailey toward supporting a rate cut. Looking ahead to 2026, we anticipate an additional 75bp of easing, taking Bank Rate to 3%, which is about 40bp more than markets currently price in.

Data since the November meeting has so far confirmed the disinflationary trend. October CPI was in line with the BoE’s estimate at 3.6% yoy, down from 3.8% in September (table 1). More importantly, services inflation undershot the BoE’s forecast by 0.1pp at 4.5% yoy, down from 4.7% in September, while food inflation, a key concern for more hawkish members given its disproportionate effect on inflation expectations, also undershot by 0.1pp at 4.9% yoy. However, long-term inflation expectations remain close to record highs. We expect November CPI, published a day ahead of the December meeting, to match the BoE’s forecast. Nonetheless, an upside surprise, particularly in services or food inflation, two key concerns for the MPC, would reduce the probability of a December cut.

Starting with the obvious: the four members who voted for a 25bp cut in November are likely to support a cut again at this meeting, given that the data since November has been marginally softer than the BoE’s forecast. Meanwhile, recent comments from the four hawkish members (Greene, Lombardelli, Mann, and Pill) suggest they favour keeping Bank Rate unchanged.

Beyond December, we believe the next rate cut is likely in April. As mentioned above, this is largely due to the guidance that a higher accumulation of evidence would be needed for further cuts as Bank Rate approaches neutral, combined with the limited data available between the December and March meetings (only two CPI reports). By contrast, two additional CPI releases will be published ahead of the April meeting, which should provide sufficient evidence of disinflation for the MPC to cut again Thereafter, our expectation that growth remains below potential; the labour market continues to loosen well above estimates of the NAIRU; and inflation moves within touching distance of 2% by April, helped by softer annual price resets of administered items and government measures to reduce energy bills, along with softer services inflation, supports a more aggressive easing cycle, with cuts in June and July, until Bank Rate reaches our estimate of the neutral level at 3%.