BoE Preview: Seven major banks expectations

The Bank of England (BoE) is set to announce its Interest Rate Decision and the Asset Purchase Facility on 6 August at 06:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of seven major banks, regarding the upcoming BoE meeting. The market consensus is the BoE to keep rates unchanged at 0.1%.

TDS

“The Bank of England meeting isn't expected to bring any major policy decisions after QE was already extended at the June meeting. We think the focus of the August meeting will be on the BoE's macro forecasts, their first set since the onset of the pandemic. While near-term GDP should be a bit better, we believe that the BoE's "illustrative scenario" in the May MPR was far too optimistic, and that growth rates in H2 2020 through 2021 will have to be revised substantially lower. This should see CPI below 2% at the 2-3 year forecast horizon. However, the wildcard is the more hawkish outlook of the chief economist, and how much sway he ultimately has over the forecasts in the MPR.”

MUFG

“We expect the BoE to express caution over the highly uncertain economic outlook given the risk of further disruption from a second COVID wave, and the risk of another hit to growth later this year when the job furlough scheme expires in the autumn. The NIESR has warned that the government’s decision to bring a premature end to the scheme will result in unemployment rising above 3 million and the unemployment rate to almost 10%. As a result, we believe that the BoE will deliver further policy stimulus in November. It leaves the upcoming BoE meeting finely balanced for the GBP. If the BoE fails to provide a strong signal that further is easing coming, it will open the door for the GBP to extend its recent advance. On the other hand any further encouragement from the BoE in favour of implementing negative rates could see recent GBP gains reverse sharply.”

ING

“Negative Interest Rate Policy (NIRP) is under ‘active review’ at the BoE, but we think it a little too early for the BoE to make any decisive moves here. We think the BoE will prefer to hold off on the use of NIRP until some clarity emerges on the UK-EU relationship from 2021. Currently money market futures price the bank rate (currently at 0.10%) moving into negative territory early next year. Also, there are no expectations at this meeting for a change in the BoE’s £745 billion APP target.”

Deutsche Bank

“We are not expecting any change to the policy rate at this meeting, there is a chance for a dovish surprise on the overall commentary and tone. The focus will be on the central bank’s economic projections, the ongoing review of the effective lower bound, and the path of QE.”

Rabobank

“We expect that the Bank of England’s Monetary Policy Committee will keep Bank rate unchanged at 0.10%. Even though we continue to view the balance sheet as the Bank’s policy instrument of choice, the slowdown in purchases implies that a further increase in the APF’s ceiling is not imminent. As the MPC wants to keep its powder dry for as long as possible, we don’t expect any bold statements or strong hints at additional easing. The economy of the UK faces a trifecta of risks in the remainder of the year: a second wave of the virus, a Brexit with negative economic consequences and an increase in unemployment. It’s hard to see how this isn’t ultimately met with a monetary policy response. We call for another GBP 100 billion increase of the APF, setting our sights at the November meeting.”

Credit Suisse

“It is unlikely this meeting results in a policy shift. It is possible that more information will emerge about the ongoing assessment of negative rates as a future policy choice, but in immediate practical terms, nothing should emerge this week on this front. Still, with UK gilt yields negative out to 8-year maturities (and over half of the entire GBP 2.5 trillion gilt market showing negative yields), the market clearly ascribes a realistic chance of a negative BoE base rate becoming a reality in the not-too-distant future. And even if supply-demand imbalances can be pushed as an excuse for this independent of rate expectations (forecasters including the CS economics team typically expect a further GBP 100bio rise in the asset purchase target by November), the Sonia OIS market is also pricing in a 1y1m rate of -8bp, pointing to a strong possibility of a negative base rate by that point in time (from current level of 0.10%).”

Scotiabank

“No change to the 0.1% Bank Rate is expected. Forecasts will be updated and could showcase the MPC's bias toward downside risks. Expect further jawboning on the negative rate option, but it's unlikely that the results of the BOE's review of this option will be disclosed just yet. At present, markets are pricing a marginally negative policy rate commencing in early 2021.”