BoE Preview: Forecasts from 10 major banks, looking for clues on tapering timing

The Bank of England is having a monetary policy meeting. Policymakers will announce their decision on Thursday, September 23 at 11:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of 10 major banks. At this point, market participants are pricing in that the central bank will maintain its current monetary policy unchanged.

FXStreet’s Chief Analyst Valeria Bednarik lays out the possible effects on GBP/USD of the BoE’s monetary policy decision.  

BBH

“We expect another dovish hold in light of the softer data. The bank has been warning that inflation could spike higher before returning close to the 2% target. The inflation forecasts from the August 5 decision were 4.0% (2.5% in May) in 2021, 2.5% (2.0%) in 2022, and 2.0% (2.0%) in 2023. These inflation forecasts suggest no hurry to hike and no need to hike aggressively. Updated BoE forecasts won’t be made until the November 4 decision. 2024 will be added to the forecast horizon then and will be very important components of the bank’s forward guidance.”

TDS

“The MPC is almost certain to leave all policy on hold, and without new projections, will say little about the policy outlook. Forward guidance was only just updated and is unlikely to change again so soon. Little scope for BoE policy changes and a hawkish repricing in the front-end has us expecting limited and constrained price action in cable, especially with the decision following a key Fed meeting. We see scope for modest EUR/GBP downside, however.”

Danske Bank

“We do not expect much news from the BoE as it is one of the interim meetings. That said, the combination of high inflation and payroll employment now above pre-covid levels (although total employment remains subdued) means that risks are tilted towards a more hawkish BoE. QE is set to end by the end of the year and the question is whether the ‘Old Lady’ will hike as early as in spring next year.”

Nomura

“We expect a unanimous vote for no change in rates, one member to continue voting to end the QE programme early, and at least five members saying that they think guidance (with respect to tightening policy) conditions have been met (up from four at the August meeting) – even if we’re some way off the Bank pulling the trigger on rates.”

Rabobank

“The BoE’s MPC is likely to vote unanimously to keep the Bank rate on hold at 0.10%. The asset purchase target looks set to remain at GBP895 B, but this vote could be split. As inflation surges, calls for a relatively early BoE rate hike are growing louder.  Yet the increase in inflation has been driven primarily by (global) supply bottlenecks, an unusual consumption bias, and low levels of inventories. This is not a normal business cycle, and it shouldn’t be interpreted as such. Meanwhile, the UK has already achieved peak growth, and fiscal policy turns into a headwind. The transition out of the furlough program comes with new uncertainties too. Our base case remains that there won’t be a rate hike this year or next.”

SocGen

“We expect a unanimous vote for an unchanged Bank Rate of 0.1%. Again, Saunders will probably vote for a cut in the gilt purchase target by GBP45 B and there is a minor chance that Pill will agree with him. The existing forward guidance, based on the elimination of spare capacity, is likely to be repeated. Watch closely for any change in the language about the split on the committee between those thinking that this necessary (but not sufficient) condition for tightening has been met and those who do not.” 

MUFG

“We expect the BoE to mainly stick to the policy message from August when they formally adopted a gradual tightening bias. It is more likely that the BoE will wait to see how the labour market responds to the end of the jobs furlough scheme this month before delivering a stronger rate hike signal. Recent positive labour market momentum has provided reassurance that the upcoming rise in unemployment will be more modest than feared.”

BMO

“No changes are expected to be made to rates (Bank Rate 0.10%) nor its Asset Purchase Facility. The tone of the meeting will match the hawkish one assumed at the last gathering in August. The September meeting will see some shuffling of the deck, with two new members joining. Huw Pill is the new Chief Economist. He has hawkish leanings (and replaced the other hawk, Andy Haldane) given that he, in 2010, wrote about the limits to QE. Offsetting his views, perhaps, is Catherine Mann, who replaced well-known dove Gertjan Vlieghe. Both are unlikely to cause waves at their inaugural meeting, but a rate hike discussion is likely to dominate the proceedings. Expect a repeat of the line that some tightening is likely necessary, but policymakers will speak up on the noise in the inflation and wage data. Markets are already pricing in rate hikes in the first half of 2022; so, a similarly hawkish tone won’t be a big surprise. We also moved up our expectation for the first move: a 15 bp hike in May 2022, to get to 0.25%. That will set up the BoE to move in 25 bp increments beginning in 2023.”

ING

“We expect a unanimous vote to keep rates unchanged at 0.1% and an 8-1 vote to keep the quantitative easing programme on track to finish in December. No new forecasts will be provided this time.”

UOB

““UK policymakers will probably want more time to see how the labour market adjusts to the expiration of the furlough scheme before withdrawing stimulus. While we certainly would not rule out an earlier move, our base case, for now, is still for the first rate hike to come in 2023.”