Bank of England Preview: Forecast from 10 major banks

The Bank of England is set to leave its policy unchanged and comment on recent UK developments and potentially hint on future policy. Minutes from the meeting due out at 12:00 GMT may acknowledge the recent improvement and lean toward allowing UK yields to rise.

As we get closer to the release time, here are the expectations forecast by the economists and researchers of 10 major banks.

According to FXStreet’s Analyst Yohay Elam, the BoE may provide an upbeat outlook and boost the pound.

Capital Economics

“Given the improving economic outlook, we doubt the Monetary Policy Committee (MPC) will respond to higher gilt yields by stepping up the pace of its QE purchases. But we think that it will use the policy statement to reiterate its forward guidance that it will keep interest rates unchanged for many years.”

TDS

“We look for the BoE to keep its policy rate and QE stance unchanged at this meeting. Despite how quiet MPC members have been on the moves in markets since the February MPR, we do think that some pushback is warranted, as the UK has seen a substantially tighter stance from both the rates and FX channels. However, since at least part of the move is warranted, it's likely to be more of a nudge than the ECB's shove.”

Deutsche Bank

“They are likely to try and strike a similar balance between the market pricing in an improving outlook and not wanting financial conditions to tighten excessively. The market is not expecting a change to either the policy rate or asset purchases.”

BBH

“The last meeting February 4 saw the bank deliver a less dovish than expected hold. Of note, it said it was appropriate to prepare for negative rates but said it did not intend to signal that negative rates are coming. Deputy Governor Ramsden went even further and said he envisions slowing the pace of QE later this year. Since that meeting, the UK curve has steepened by 40-45 bp at the long end and 55-60 bp in the intermediate range. During that time, the sterling has gained 2% vs. the dollar and over 2.5% vs. the euro. While Bailey’s comments suggest otherwise, we believe the BoE will eventually have to push back against the rise in UK yields.”

Rabobank

“We expect that the Bank’s MPC will keep its key policy rate at 0.10% and its asset purchase target at GBP895 B. The votes are likely to be unanimous. The combination of higher inflation, prolonged fiscal support, and a successful vaccination campaign has investors discounting the prospect of a negative policy rate. Conversely, Brexit will cast a long shadow over the economy, so uncertainties remain high. Even as the GBP150 B of gilt purchases that have been lined up for this year does require some tapering, we don’t think that the MPC wants to fan the flames of the gilt market.”

BMO

“The BoE is not expected to announce any changes to the policy. Recall during the last meeting in early February, there was a lengthy conversation around negative rates, with plenty of disclaimers interspersed into the Minutes. Since then, the economy has picked up (see February PMIs, consumer confidence, retail sales as measured by the BRC and KPMG). And, the government has met its goal of giving, or offering, a vaccine to those most vulnerable in the population. But, Governor Bailey was clear this week when he talked up the ‘two-sided’ risks to growth, and that the Bank was still working on negative rates if the recovery disappoints. I guess it doesn’t hurt to make sure all bases are covered.”

Citibank

“The key question for the BoE MPC is whether there is enough positive news since the Feb meeting to justify a sharp rise in sterling and market pricing of 50-60bp more rate hikes over 3Yrs than at the last meeting (2 full hikes rather than a small cut over the next three years). The Bank currently has neither the policy (yield curve control) nor the tool (a flexible QE envelope) to push against higher gilt yields, nor against sterling’s rise, so the main way to pass a dovish message would be to emphasize downside risks to the econ. We still see enough economic weakness relative to the Bank's likely forecasts to retain their call for a last GBP50 B QE extension to year-end.”

UOB

“With the pandemic still taking its toll on businesses and households, and the outlook highly uncertain, the BoE will be cognizant of the risks and hence, likely to maintain a very accommodative monetary policy stance until the recovery is on a firmer footing. At this juncture, we are not ruling out an acceleration in the pace of bond purchases, or changes to the Term Funding Scheme. As for negative interest rates, we are not expecting any further cuts for now.”

DBS Bank

“Little is expected from BoE policymakers in view of the recent UK Budget’s fiscal measures, and with data showing more than 24 M first doses of COVID-19 vaccine dispensed. There should be a unanimous decision from the Monetary Policy Committee to stay pat on benchmark rates at 0.1% and leave the asset purchase programme unchanged at GBP895 B. Ahead of this policy meeting, BoE Governor Andrew Bailey has said in a BBC Radio 4 interview his ‘assessment so far is that that is consistent with the change in the economic outlook’. This benign approach contrasts against the European Central Bank’s attempts to limit government bond yields. This might provide a buffer for GBP vs EUR as interest rate differentials move in favour of GBP.”

MUFG Bank

“The vaccine rollout programme has progressed more quickly than expected at the start of this year. It will encourage the BoE to express more confidence in the economic recovery. The BoE will have been encouraged as well by the government’s decision to provide more fiscal stimulus in the latest budget update, and by the smaller than expected GDP contraction in January. Recent developments suggest that downside risks to the growth outlook have continued to ease. The MPC would need to see greater than normal levels of evidence that any increase in inflation would be sustained before tightening policy. We expect the BoE to express similar views at today’s MPC meeting. The outcome is likely to be less of a market mover than last month’s meeting which prompted market participants to price out the likelihood of negative rates and further rate cuts in the UK. It continues to provide a more favourable backdrop for the pound.”