BoE Preview: Forecasts from nine major banks, preparing to gear down

The Bank of England (BoE) will announce its interest rate decision on Thursday, February 2 at 12:00 GMT, publishing the Minutes of the meeting and Monetary Policy Report (MPR) alongside. 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 set to raise rates by 50 basis points (bps) in February from 3.50% to 4.0%. The vote split, forecasts and Governor Bailey’s press conference will steal the show.

Danske Bank

“We expect the BoE to hike the Bank Rate by 50 bps. We pencil in an additional 25 bps hike in March, now expecting the Policy Rate to peak at 4.25% in March 2023. Dovish communication from BoE should send EUR/GBP higher during the day.”

TDS

“We expect the MPC to hike 50 bps at this meeting, but signal a downshift in the pace of rate hikes as terminal approaches. The vote is likely to be skewed to the downside even more than in December. While we view GBP/USD as a clear expression of risk sentiment and global growth, EUR/GBP likely captures some variation of local dynamics between the two currencies. With the shift in terminal rate pricing (and relative growth expectations) likely to favor the EUR, we continue to expect a break of 0.90 in EUR/GBP in the months ahead.”

Rabobank

“We expect the BoE to start off 2023 with a 50 bps rate increase. It would lift the Bank rate to 4.00%. The vote is again likely to be split in a net dovish way. We still expect the central bank to raise rates to 4.75% by mid-2023, as it seeks to pull out the roots of inflation, but the window for larger 50 bps increments closes soon. The risk remains that very restrictive settings prove too effective in slowing the economy. This would present itself in an even deeper curve inversion. We only expect the first cuts by 2024.”

Nomura

“We expect the BoE to raise rates by 50 bps, which we think will be the final half-point move (reverting to 25 bps in March to reach a peak rate of 4.25%). It is a Monetary Policy Report meeting and the Bank will publish new forecasts – expect a lower near-term inflation profile due to falling energy prices but possibly a higher end-point than the zero rate published in November. We expect the Bank to forecast a less pernicious recession than the near-3% decline in GDP it expected at its last forecast round. These forecasts may be significantly influenced by the Bank’s annual review of the economy’s supply potential.”

SocGen

“We maintain our forecast of a 50 bps increase followed by a final 50 bps increase at the March meeting to a peak of 4.5%.” 

Wells Fargo

“With recession on the horizon, we believe the BoE will take a more gradual approach to rate hikes. As of now, financial markets are priced for a 50 bps hike and our peer economists forecast the BoE to lift policy rates by 50 bps as well. However, we believe policymakers will take a more measured approach and lift rates by only 25 bps as they are now more focused on protecting against a prolonged recession. Following this meeting, another 25 bps hike in Q1 is likely, and at the March meeting, we believe policymakers will signal an end to their tightening cycle.”

ING

“We expect a 50 bps rate hike for the second consecutive meeting. Still, if we get a 50 bps hike on Thursday then it’s likely to be the last. BoE officials have suggested that much of the impact of last year’s rate hikes are still to show through, and cracks are forming in interest-rate-sensitive parts of the economy. We expect one final 25 bps hike in March, taking the Bank Rate to a peak of 4.25%. The key question for Thursday is whether the Bank itself acknowledges its work is nearly complete. We suspect it’s more likely to keep its options open.”

Citibank

“While there is a strong case for the MPC to hike by only 25 bps, a 50 bps move still feels more likely. With demand now likely stronger, and domestic price pressures still intense, we expect the ‘balance of fear’ to therefore lean towards doing more sooner, with a deceleration to 25 bps likely in March.”

Deutsche Bank

“We see another 50 bps hike that will take the Bank Rate to 4%. That will potentially be the last 'forceful' hike in this tightening cycle. Although our view is that services and wages data warrant such a move, the risks are tilted to the downside. We continue to call for a 4.5% terminal rate as inflation pressures remain resilient.”