BoE Interest Rate Prep
On Thursday the 18th of June, 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 hold rates steady at 3.75%, unchanged from the prior rate. With the high and low ranges supporting this.
Investment Bank Commentary
Wells Fargo
When Bank of England (BoE) policymakers meet next week, we expect them to leave Bank Rate on hold at 3.75%. The economy was subdued before the Middle East conflict, and policymakers had been expected to cut rates this year to support growth. That should keep the BoE cautious next week, even as some members may lean more hawkish and emphasize that they remain “ready to act.”
Recent data have been mixed enough to justify a hold for now. Q1 GDP surprised to the upside at 0.6% quarter-over-quarter, but much of that strength reflected pre-conflict conditions. April GDP then fell 0.1% month-over-month, which suggests momentum may already be softening. While April inflation remained contained at 2.8% year-over- year, higher energy prices should start to reverse the disinflation trend in the coming months. The BoE’s Inflation Attitudes Survey also showed a sharp rise in year-ahead household inflation expectations to 4.0%. At the same time, the labor market has weakened, with unemployment at 5.0% and forward-looking surveys pointing to softer labor demand.
As such, while we expect the BoE to stay on hold next week, we still see scope for tightening in H2 as second-round effects become more visible. We look for an initial 25 bps rate hike in Q3, potentially in July alongside the updated Monetary Policy Report, followed by another hike in Q4. That would bring Bank Rate to a terminal rate of 4.25%. Risks are tilted toward a more limited tightening cycle if growth weakens more sharply or the labor market loosens faster than expected.
ING
Financial markets have responded to renewed UK political turmoil by ramping up bets on Bank of England tightening. We warned that what ultimately became disastrous local elections for the ruling Labour Party left markets exposed to a sell-off amid renewed leadership speculation. Almost three rate hikes are priced before year-end, almost identical to what’s expected from the European Central Bank.
We remain unconvinced. We’re now forecasting one rate hike from the BoE in June, but only narrowly. At April’s meeting, officials made clear that simply not cutting rates – something the Bank would likely have done at least twice this year absent the Iran war – already amounted to de facto tightening. With energy prices not far from today’s levels, the prevailing view inside the Bank felt somewhere between a prolonged hold and a one-and-done rate hike. We’re nudging towards the latter, largely because our own energy assumptions are more aggressive than the low and central scenarios officials were considering late last month. Even so, the case for a multi‑hike cycle looks thin.
Though Prime Minister Keir Starmer is fighting on, investors are increasingly pricing a leadership contest that leaves Labour shifting left, loosening fiscal rules and increasing borrowing. In theory, that could argue for higher interest rates. In practice, memories of the 2022 mini‑budget crisis remain raw, and any leadership hopeful will be under intense pressure to rule out dramatic fiscal changes. Even if they don’t, meaningful policy shifts are unlikely before the Autumn Budget, probably in November. The Bank of England cannot respond to fiscal changes that have not been formally announced, meaning leadership speculation is unlikely to matter for monetary policy before the fourth quarter – if at all.
