Bank of England: Hold stance extended as inflation risks linger – TD Securities

TD Securities economists expect the Bank of England (BoE) to keep Bank Rate at 3.75% with a 7-2 vote as Greene joins Pill in calling for a hike. They highlight persistent inflation pressures, upside risks from energy and airfare, and softer demand. Their updated call delays the final rate cut to April 2027, keeping Bank Rate at 3.75% through 2026.

BoE seen on hold but hawkish

"We expect the Bank of England to remain on hold with Bank Rate remaining at 3.75%. After her hawkish speech and FT column, Greene is likely to join Pill in dissenting for a hike, bringing the vote to a 7-2, but others are set to remain on hold as they continue to evaluate the trade-off between higher inflation and soft demand."

"Data has also been supportive of an ongoing hold, with inflation softening markedly to 2.8% y/y on the headline measure and 2.5% y/y on core - both surprising to the downside of the market and the BoE's forecasts.The labour market has continued loosening and PMIs point to a slowdown in activity, particularly in services, which suggests that weak demand could still limit firm pricing power. This would reduce the need for Bank Rate hikes, as per most of the MPC members' views."

"However, April's disinflation was largely on the back of administered price base effects, rather than monthly dynamics. And looking ahead, there is still an upside risk as the Ofgem price cap increase of 13.5% takes effect in July and airfare prices start picking up throughout the summer."

"We recently revised our medium-term inflation forecasts to factor in the above points and with inflation now peaking at 3.8% y/y in November, we expect the BoE to delay its last rate cut from November to April 2027. We still believe that the path remains downward to a neutral rate of 3.50%, but that the MPC cannot justify cuts while inflation is rising."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)