BoE: Steady as she goes

We expect the Bank of England (BoE) to keep the Bank Rate unchanged at 4.25% on Thursday 19 June in line with consensus and market pricing.
Data has surprised to the downside since the past meeting with the job market showing more pronounced signs of cooling. We think this will support the notion of further quarterly cuts.
We expect the reaction in EUR/GBP to be muted. We stay negative on GBP.

Danske Research Team Danske Bank A/S

We expect the Bank of England to keep the Bank Rate unchanged at 4.25% on Thursday 19 June in line with consensus and market pricing. We expect the vote split to be 7-2 with the majority voting for an unchanged decision and Dhingra and Taylor voting for a 25bp cut. Risks are tilted towards a 6-3 vote split. Note, this meeting will not include updated projections or a press conference following the release of the statement.

Overall, we expect the BoE to stick to its previous guidance repeating that a "gradual and careful approach to removing monetary policy restraint remains appropriate". Since the last meeting in May, data has generally surprised to the downside. Weakness in the labour market has become more pronounced over the past months with payrolls dropping consistently and unfilled vacancies continuing to edge lower. Private sector wage growth has likewise been lower than expected - although it remains at elevated levels. Growth has been weaker than expected at -0.3% m/m in April and poses as a downside risk to the MPC's projection of 0.1% q/q for Q2 2025. Service inflation remained to the high side at 5.4% y/y in April, but we note that the increase was largely due to the timing of Easter and an overestimation by the ONS of the increase in road tax, which will push the print lower again in May.

BoE call. We expect the BoE to stick to quarterly cuts, leaving the Bank Rate at 3.75% by YE 2025, which is aligned with market pricing. Markets are pricing 50bp for the remainder of the year. However, we highlight that the risk is skewed towards a swifter cutting cycle in 2025 and 2026 given the downside risks to growth.

Market reaction. We expect a muted market reaction as the BoE will refrain from altering its current guidance. More broadly, we stay negative on GBP. An investment environment characterised by elevated uncertainty and a positive correlation to a USD negative environment, in our view, favours a weaker GBP. Tentative signs of a weaker growth outlook for the UK economy also acts as a headwind for GBP. We therefore expect EUR/GBP to move higher towards 0.87 on a 6-12-month horizon.

Download The Full Bank of England Preview

Author

Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.