BoE Preview: Forecasts from 10 major banks, no hike due to Omicron

The Bank of England (BoE) will announce its decision on Thursday, December 16 at 12:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of 10 major banks. The consensus is to wait until more data about the variant and its economic impact is evident and to raise rates only in February.

As FXStreet’s Analyst Yohay Elam notes, The Monetary Policy Committee's voting pattern is critical to sterling's moves. 

Rabobank

“The emergence of the Omicron-variant accentuates the binary risks faced by policymakers, as they grapple with opposed concerns of slowing demand and supply-side price pressures Even though investor worries over this variant being a drag on the economic recovery already started to ease, the government has implemented Plan B. This is likely to encourage the Bank’s MPC to go for Plan B as well and *again* judge there is .value in waiting’. That said, we believe the central bank feels duty-bound to show some willingness to prevent inflationary pressures from persisting We hold on to our forecast of a much less aggressive tightening cycle than what is currently priced in front-end rates, pencilling in only 40 bps worth of rate hikes in 2022. We still see little chance of the Bank of England hiking 100 bps by the end of next year.”

Nordea

“Going into this week’s BoE meeting, it is pretty clear that the bank is set to put an end to its GBP875 B bond-buying programme, while the bigger question is whether we will see a hike or not. November’s data in the UK has been relatively strong; unemployment has dropped two-tenths below the BoE’s Q4 projection, firms have shown uplifting solvency figures despite the end of the furlough scheme, and consumer confidence has ticked higher. All of these economic variables were flagged by the bank at the November rate hold surprise, which suggests a 15bp hike is in place, but we would not be surprised if Covid sends the hike into the February meeting.”

TDS

“We expect the BoE to leave Bank Rate on hold at 0.10%, given the intensified COVID-19 restrictions announced last week. Another pass this month by the BoE leaves GBP vulnerable to a fresh wave of selling pressure, reflecting Omicron uncertainty and heightened volatility. As a result, EUR/GBP should remain near the recent highs for a bit longer, though we like the prospects of fading into 2022. GBP/USD could make a near-term push towards 1.30 if risk appetite starts to crumble.”

ING

“With the situation surrounding Omicron still highly uncertain, it looks more likely than not that the Bank of England will keep rates on hold again next week. But assuming the new variant doesn’t deliver a sharply hindered growth outlook, we think policymakers will increase rates in February. Bank officials have continued to voice concerns about inflation, and if anything Omicron could exacerbate this further via the impact on the supply chain recovery. A lot depends on the hit to January GDP – and if we see further restrictions come in, we could see the Bank delay yet further into 2022. Still, the direction of travel for the BoE is fairly clear. We expect two rate rises next year.”

Deutsche Bank

“We expect the MPC will raise Bank Rate by +15bps to 0.25%. News of the Omicron variant has changed little on the medium-term economic outlook, with the labour market remaining as tight as it has been in recent memory, and inflation continuing to outpace staff forecasts. Nevertheless, the risks to this view are finely balanced, and risk management considerations may lead them to delay a rate hike, as they instead opt to find out more information on Omicron’s impact.”

BBH

“We think it makes perfect sense for the BoE to remain on hold this week. Swaps market is pricing in 100 bp of tightening over the next twelve months, which strikes us as a bit too aggressive.” 

SocGen

“Our updated forecast is that the MPC will wait, endorsed with a unanimous vote this week, until the February 2022 meeting to pull the trigger with a 15bp rate hike. By that time, the impact of the end of furlough should be very clear and the Omicron variant should hopefully be under control. We expect the February hike to be followed by three quarterly increases of 25bp to reach 1% by November.”

BMO

“Our view is that the BoE will stay on the sidelines at the final meeting of 2021, particularly with new restrictions being introduced. But, with inflation pressures climbing, and labour markets tightening, there is a risk that delaying a move would force the MPC into a larger hike in February.” 

Citibank

“We expect the MPC to hold rates steady. The spread of Omicron has replaced the end of furlough – as the key uncertainty. However, tightness in the labor market and some signs of stiffening demand mean the MPC is still likely to signal a tightening of policy in early 2022. We now expect a 15bps hike in February, a further 25bps hike in May with the MPC then on hold until May 2023. However, a more persistent covid disruption or further delay may mean the MPC either hikes only once in 2022, or even not at all.” 

BofA

“It's a close call, but we expect the BoE to leave interest rates unchanged due to Omicron effects/uncertainty. We look for the BoE to hike 15bp in February and 25bp in May. Beyond that, we see the BoE hiking slower than the market does. We expect Omicron to form a strong narrative as to why the MPC will keep rates on hold and, with market still pricing in a one-in-three chance of a hike, our base case view is bearish GBP on no change in rates. Of course, we have to acknowledge this new injection of uncertainty, and prevailing negative sentiment suggests the pain trade is a squeeze higher in GBP if the MPC hikes.”