BoE Preview: Forecasts from 10 major banks, big rate hike in doubt

The Bank of England (BoE) is set to announce its interest rate decision on Thursday, November 3 at 12:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of 10 major banks.

The BoE is widely expected to hike rates by 75 basis points to 3.0% on ‘Super Thursday’. Apart from the rate decision, the bank publishes the Meeting Minutes. What makes this event super is that the “Old Lady” also releases its quarterly Monetary Policy Report. 

Standard Chartered

“While the decision could be a close call, with some members of the Monetary Policy Committee (MPC) voting for a continuation of the 50 bps hikes delivered at recent meetings, we think the hawks will prevail and a majority will vote for 75 bps. We now expect a pivot back to 50 bps in December, as more evidence of a material slowdown in the UK economy is likely to emerge by then. With inflation likely to have peaked in October and started to fall, this should further support the case for a return to a 50 bps hiking pace. We continue to expect another 75 bps of tightening in Q1 (50 bps in February and 25 bps in March). However, given headwinds to the UK economy, we think risks to this forecast are to the downside. In the event of a sharper slowdown in economic activity and clearer signs of labour-market softness, we could see a faster pivot back to 25 bps. In that scenario, the terminal rate would top out at 4.00% or even slightly lower. As for quantitative tightening, the BoE remains committed to starting active sales of Gilts at the beginning of November but has said that at least initially, this will not include longer-dated Gilts. Given the improvement in market sentiment – particularly for UK bond yields – we think the BoE will try to keep to this plan as much as possible, while closely monitoring whether market conditions are appropriate.”

SocGen

“We maintain our forecast of a 75 bps hike on the way to a peak of 4.5% at the March 2023 meeting. Now that the markets have settled down and pension funds seem to have weathered their collateral problems after the Bank’s successful intervention, it looks likely that active gilt sales will commence, as twice rescheduled, on 1 November. The revised plan excludes sales at the long end because of the impact of the pension fund issue on that part of the curve.”

Rabobank

“We look for a 75 bps rise in Bank rate to 3.00% from 2.25%. It would still be the largest rate hike of this cycle. We expect to see rates peaking at 4.75%. That will slow down the economy.”

ING

“It was unthinkable only a few weeks ago, but we now think a 50 bps rate hike is narrowly more likely than the 75 bps Bank of England rate hike markets and most economists appear to be expecting.”

TDS

“We look for a 75 bps hike from the BoE in Nov. While the labour market has tightened further, inflation has matched the MPC's forecasts. Moreover, the several fiscal U-turns and change of PM and Chancellor should lower the risk of a larger hike. The delay of the fiscal event shouldn't mean much for the decision as the broad characteristics of fiscal policy are already known.”

Deutsche Bank

“We expect the central bank to hike by 75 bps, taking the Bank Rate to 3%. Beyond Thursday's meeting, we see a terminal rate of 4.5% amidst growing fiscal consolidation. Our expected sequence of hikes beyond Thursday has 50 bps in December and February and 25 bps in March and May.”

NAB

“The BoE will not have the full set of UK Treasury fiscal spending plans as hoped, but we and the consensus of economists now look for a 75 bps rise to 3%. There will be interest in the BoE’s new CPI and GDP forecasts, with the latter likely to show a deeper and more protracted recession in 2023 and 2024. There will be a press conference at this event to provide some more colour.”

Danske Bank

“We expect the BoE to hike the Bank Rate by 75 bps but in our view, it is a close call between 50 bps and 75 bps. We keep the rest of our forecast intact, expecting the Bank Rate to peak at 3.75%. We expect fewer hikes than priced in markets as we emphasise the weak growth outlook. In our base case, we expect headwinds for GBP upon announcement.”

BMO

“While there is no longer an urgent need for a full 100 bps increase, the still-low value of the GBP and the high inflation rate points to, in our opinion, a 75 bps hike. However, the risk lies in a 50 bps’er given that the majority of the BoE typically votes for the more modest-sized increase.”

Wells Fargo

“We believe the BoE will deliver a 100 bps rate hike, bringing the Bank Rate to 3.25%. The UK has some of the highest inflation of developed economies, with headline CPI reaching 10.1% year-over-year in July, then slipping to 9.9% in August, then edging higher back to 10.1% again in September. This back-and-forth inflation reading shows just how stubbornly strong price pressures are, and underlines one of the reasons we expect such a large rate hike in November. However, we believe the UK economy contracted in Q3. This soft economic outlook reinforces our expectation for the BoE to underdeliver on future rate hikes compared to market expectations, and ultimately bring the policy rate to a peak of 4.00% in Q1-2023, compared to a peak of more than 4.50% expected by market participants.”