BoE Interest Rate Prep

General Expectations
Expectations 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

ING
The Bank of England is poised to keep rates on hold on 30 July despite a rise in energy prices. Expect new forecasts to show inflation peaking around 3% later this year. We think oil and natural gas prices would need to spike a fair bit further for the Bank to hike rates in September

The rise in energy prices poses a fresh dilemma for the Bank of England, but we still don’t think the bar for a rate hike has been met. We’re expecting another 7-2 vote to keep rates on hold this Thursday.

The Bank’s updated forecasts are likely to show inflation fairly close to 3% in the second half of this year and into early next. And crucially, that’s well below the 4% threshold that the Bank has previously argued is statistically more likely to trigger second-round effects and a longer-lasting bout of price pressure.

Then there’s inflation, which is looking pretty well-behaved. Food inflation is remarkably benign, as it is across much of Europe. And though it will take time, this is an obvious place for higher energy prices to show up if second-round effects take hold. Core services inflation has also been easing. There’s also scant evidence in the surveys that firms are embarking on either bigger price rises or more substantial wage increases.

On that basis, we think energy prices would need to go a fair bit higher to convince more than the four hawks to vote for a hike. Oil prices back to US$120/bbl (from $90 today) – and Dutch TTF natural gas prices up around €80/MWh (from €58) – would take inflation above 4% and would likely trigger some modest tightening.

Wells Fargo

When Bank of England (BoE) policymakers meet next week, we expect the Bank Rate to remain unchanged at 3.75%. The June meeting revealed a more hawkish Committee than the headline 7-2 hold suggested. Catherine Mann, despite voting to hold, joined dissenters’ view of upside inflation risks as the more prominent threat.

The data nevertheless give the majority room to wait. June CPI slowed to 2.6% year-over-year from 2.8%, while services inflation eased to 3.6% and core inflation held at 2.6%. At the same time, the labor market continues to soften, with unemployment at 4.9% and private-sector regular pay growth slowing to 2.9%. While the 13.5% increase in the Ofgem energy price cap is likely to push headline inflation higher and household inflation expectations remain elevated at 4.0%, there is little evidence yet that those pressures are passing through more broadly.

We therefore expect the BoE to hold next week while preserving a tightening bias. We look for the Monetary Policy Report to revise near-term inflation higher and growth lower. We continue to expect a 25 bps hike in Q4, though risks remain tilted toward an extended hold should growth weaken further, or labor market conditions soften more quickly than expected.