BoE Preview: Forecasts from nine major banks, hikes to continue until inflation improves

The Bank of England (BoE) is set to announce its policy decision on Thursday, June 16 at 11:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of nine major banks. 

The BoE is likely to hike the key rate by another 25 bps to 1.25%. A surprise 50 bps hike cannot be ruled out if the “Old Lady” prioritizes inflation control.

UOB

“Previously, we had held a cautious view of the BoE pausing once the policy rate reaches 1.00%. However, the last voting outcome by the MPC has turned out a little less dovish than our expectations, and we thus now look for another 25 bps hike in June. As for asset sales, we will likely have to wait until at least then for some guidance, though we expect sales to begin in 4Q22 at GBP5 bn a month.”

TDS

“We expect the MPC to announce a 25 bps hike in Bank Rate. Guidance is likely to be left broadly unchanged but multiple votes for a 50 bps hike imply a hawkish shift. We now expect sequential 25 bps hikes through the end of 2022, with Bank Rate reaching 2.25% by year-end.”

Danske Bank

“We expect the BoE to hike the Bank Rate by another 25 bps to 1.25% but simultaneously still sending slightly mixed signals by repeating that ‘some degree of further tightening in monetary policy may still be appropriate in the coming months’.”

Deutsche Bank

“We expect a 25 bps hike this week and have updated their terminal rate forecast from 1.75% to 2.5%.”

Nordea

“We expect the BoE to bring home the message that it will continue pushing interest rates to fight inflation, despite the flagged recession signs back in March. Even with the economy showing signs of slowing, the labour market is red-hot. The latest job report revealed a 40-year low for the unemployment rate alongside wages rising by 7% amidst record-high vacancies. Looking back at the bank’s forecasts in May, the latest economic data should push the needle for the Bank of England to stay on a hawkish trajectory revising inflation higher. We expect this will include four hikes this year bringing the policy rate to 2% by year-end, which is the neutral rate of interest, and two hikes next year ending at 2.5%.”

Nomura

“We expect a 25 bps rate hike with another 25 bps hike in August and a final move in November for a terminal rate of 1.75%.” 

SocGen

“The BoE is likely to announce another 25 bps rate increase. Moreover, with some other major central banks favouring 50 bps moves, we expect the MPC vote again to be split between 25 bps and 50 bps moves.”

ING

“We expect the committee as a whole to vote in favour of a more gradual 25 bps move. Admittedly, we are likely to see at least three, possibly four, officials vote for a 50 bps move, as was the case in May.  The wild card scenario is that we get a three-way vote split – that is some officials opting for no change, some for 50 bps, and an overall majority in favour of 25 bps. This would be unusual, and a three-way vote has only happened six times since 1997 and not since the financial crisis. We also suspect the announcement of a new government spending package since the May meeting will probably tempt those wavering committee members to continue backing a rate hike for the time being. But at some point, we are likely to see further cracks in the MPC’s resolve on tightening. We expect three more hikes in quick succession, taking Bank Rate to 1.75% in the autumn. But markets, which are now pricing a terminal rate above 3% next summer, are still likely overestimating the pace of hikes.”

Wells Fargo

“We expect the MPC to hike rates by 25 bps with another 25 bps increment at its next policy meeting on August 4. We look for another 50 bps of tightening this autumn and early next year, which would take the Bank Rate to 2.00%. We do not expect the MPC to tighten as much as current market pricing indicates – the market is currently priced for a Bank Rate of nearly 3.00% by next May – due to the downside risks that significant monetary tightening poses to the economy. Real income is being eroded rapidly by high inflation, and the combination of potential retrenchment in consumer spending and significant monetary tightening could cause economic activity to crater.”