BoE Preview: Forecasts from 11 major banks, another dovish hike on the cards

The Bank of England (BoE) is set to announce its policy decision on Thursday, May 5 at 11:00 GMT, which will be accompanied by the meeting’s minutes and inflation report. As we get closer to the release time, here are the expectations forecast by the economists and researchers of 11 major banks. 

The BoE is set fulfill expectations with a 25 bps rate hike but fail to meet market pricing of further aggressive action later in the year.

ING

“We expect another 25 basis-point rate hike, but the increasingly cautious language from BoE officials and a likely growth downgrade this Thursday suggests that markets are overestimating the amount of tightening for the rest of this year. Our view is that the Bank will hike again in June before pushing the pause button from the summer.”

TDS

“Further upward inflationary pressure, more tightening in the labour market, and strong growth figures for Q1 should steer the MPC to raise rates by 25bps at this meeting. However, early signs point to the fallout from the cost-of-living crisis weighing on growth moving forward. With the BoE already signalling that it is worried about the negative impact of surging inflation on activity, this supports our view that the MPC will pause with rate hikes after the May meeting and gradually shift its focus toward QT for the second half of the year.”

Rabobank

“We expect the BoE to press ahead with a 25 bps policy rate increase to 1.00%. Some policymakers may vote for a 50 bps increase. The central bank runs the risk of raising its policy rate into a recession. Stagflation warnings are growing louder. The policy rate will reach the level at which the MPC considers selling gilts back to the private sector. For this to happen markets need to be calmer than they are right now. We do expect some clues on how the central bank intends to sell its gilt holdings. We expect two more 25 bps hikes in June and August before the cycle should pause.”

Danske Bank

“We expect BoE to hike the Bank Rate to 1.00% from 0.75%, but stick to its softer guidance on the hiking pace from last time. If we are right about the BoE sticking to its dovish signals, it is likely to weigh on GBP given the hawkish market pricing. Our Bank of England call is two additional rate hikes (August and November) but see risks skewed towards more rate hikes.”

Nomura

“We expect the BoE to lift rates by 25bp to 1%. We would not be surprised to see another 8-1 vote for a quarter-point hike with Mr. Cunliffe once again voting for unchanged rates.”

ING

“The BoE has hiked three times so far and a fourth increase looks like a near-certainty. But despite talk of a more aggressive 50bp move, we suspect that’s unlikely. It’ll be interesting to see if any committee members join Jon Cunliffe, who last month was the sole voter for no change in rates. More likely though we’ll get another 8-1 vote in favour of the hike. We expect the rate hike on Thursday to be followed by another in June, but after that, we suspect policymakers will be inclined to pause – or at the very least slowdown – the pace of rate rises. That suggests markets, which expect roughly another six hikes this year, are likely to be overestimating the amount of tightening required.”

Deutsche Bank

“The BoE is expected to raise rates and signal tighter balance sheet policy. We expect the MPC to continue wrestling with the trade-off between slowing growth and intensifying inflation, with the latter winning out and bringing a +25bp Bank Rate hike, along with two more hikes coming this year. On the balance sheet, we think the MPC will confirm its intention to sell gilts later this year, with more guidance coming over the next few meetings and sales beginning in September.”

CE

“We think the MPC is sufficiently worried about rising price/wage expectations to raise Bank Rate from 0.75% to 1.00% and to start shrinking the balance sheet quicker by selling gilts. Based on our forecast that the labour market will be tighter and that wage/price expectations will be more persistent, we expect the MPC to hike rates to 3.00% in 2023. That’s above the peak priced into the markets (2.50%) and the peak expected by a consensus of economists (2.00%).”

SocGen

“The MPC is likely to believe that it has no choice but to act decisively to prevent higher inflation becoming embedded in wage demands, despite the probable substantial hit to demand from the cost of living crisis. We no longer think the MPC will be prepared to pause at the forthcoming meeting to assess the damage from the crisis. Instead, it looks set to increase Bank Rate by 25bp at this meeting and every subsequent meeting up to and including November this year, taking it to a peak of 2%.”

Citibank

“We expect the BoE MPC to deliver a fourth 25bp back-to-back hike this week, taking the cash rate to 1.0%. Active QT may also begin in small size in June. Cost pressures remain intense, and in a context of a tight labor market, it is unlikely the MPC concludes the immediate risks to inflation expectations are yet contained – despite a weak medium-term forecast. However, the risks here seem skewed to the dovish side, with two dissenters likely to back holding the stance steady. For now, we expect a pause in the current tightening to come only in August, once weak demand has arrested the inflation pass-through, and the labor market has softened. However, with UK data now deteriorating at an accelerating rate, the team does not rule out an earlier pause or a dovish surprise (especially on guidance) this week.”

Wells Fargo

“For May, the consensus forecast (and Wells Fargo forecast) is for the BoE to deliver another 25 bps hike, which would take the policy rate to 1.00%. We expect the BoE's economic projection to include an upward revision to its CPI inflation forecast and a downward revision to its GDP growth forecast. For market participants, the focus will be on how much emphasis the central bank puts on slower growth versus faster growth, and whether it softens its prior guidance that ‘some further modest tightening in monetary policy may be appropriate in the coming months.’ That could offer insight into whether the BoE continues to hike rates at a 25 bps per meeting pace or shifts to an even slower pace of tightening.”