Bank of England Preview: Forecasts from seven major banks

The Bank of England announces its latest decision at 11:00 GMT on Thursday, June 24. As we get closer to the release time, here are the expectations forecast by the economists and researchers of seven major banks. The BoE decision should be rather uneventful, with no change in view from the May meeting. 

Ahead of the monetary policy announcement, GBP/USD is consolidating below multi-month highs on the 1.3900 level.

Rabobank

“We don’t expect any changes to the Bank’s policy settings. The economy experiences a post-lockdown sugar rush, but in our view there’s only so much latent demand that can be unleashed. The surge of the delta variant adds a new layer of uncertainty to the economic recovery. We expect CPI inflation to peak at 2.5% YoY in early-2022, before slowing down. Even though there is a risk of structurally higher inflation, the MPC will see the current rise as transitory. The MPC has already planned out most of its glide path towards the end of its net asset purchases, successfully selling this to the market as a technical taper.”

Danske Bank

“The BoE meets this week, but it is one of the interim meetings without a Monetary Policy Report, so do not expect the BoE to make any major changes. We will keep an eye on what the BoE thinks about inflation after the higher-than-anticipated inflation in May.” 

ING

“The reality is that the BoE is unlikely to say anything new, and indeed it has recently shied away from saying anything particularly concrete on the timing of a first move. Instead, UK policymakers have taken a leaf out of the Fed’s book by signalling it wants ‘significant’ progress on spare capacity before thinking about hiking. Having said that, the last set of forecasts from May (which won’t be updated next week) effectively endorsed the market’s then-view of 20bp of tightening by 2Q23. Forecasts based on that interest rate profile yielded no excess supply by the tail-end of its policy horizon and kept inflation roughly at 2%. For the time being, we’ve pencilled in the first move for 1Q23, though we wouldn’t rule out an earlier move. Possible triggers include a more rapid unwinding of household savings or a more permanent-looking increase in wage growth. When discussing future rate rises, it’s worth remembering that the BoEunder Governor Andrew Bailey seems fairly keen that shrinking the balance sheet should also do some of the heavy lifting.”

TDS

“In the wake of a more hawkish than expected FOMC, markets are now questioning which central bank may be the next to shift, and many eyes are now on the BoE. However, we think that hawkish expectations are probably overdone, as the BoE still has more GDP ground to make up than any other G10 economy, and is already tapering first. Another hawkish shift would be overkill.”

BBH

“Given the bank’s intent to have QE run to year-end, this suggests another tapering is in the cards. However, this meeting seems too soon. This will be the last meeting for Chief Economist Haldane, who was the lone vote to cut the size of QE to GBP825 B in May. Of note, the short sterling futures strip suggests some odds of the first hike in Q4 2021, rising significantly in Q1 and Q2 2022 to being fully priced by Q3 2022.”

Deutsche Bank

“We expect the MPC to remain cautiously optimistic around the recovery, keeping the policy rate on hold at 0.1% and maintaining the target stock of QE at GBP895 B. We think that stronger growth, labour market and inflation data thus far should tilt the policy statement in a slightly more hawkish direction than in May.”

Wells Fargo

“We expect policymakers to provide an update on how the economy is evolving and if the renewed spread of COVID-19 is disrupting economic activity. In addition, we expect BoE officials to provide an updated view on inflation and whether price growth is transitory or more engrained. But given the pace of the recovery, we do believe the BoE will signal a further slowdown in asset purchases is likely over the next few months. In our view, the next taper will likely occur toward the end of the summer at the BoE meeting in August.”