BoE Preview: Forecasts from 12 major banks, another rate hike

The Bank of England (BoE) will announce its decision on Thursday, February 3 at 12:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of 12 major banks. 

The market is near unanimous in expecting a 25bp hike. Investors want to know how the bank plans to unwind its massive QE and whether or not additional rate hikes will be needed later this year.

Nomura

“We expect the BoE to continue hiking with a 25bp move. Looking beyond the February decision, we continue to think that the Bank will raise rates throughout this year. We take this opportunity to adjust our BoE view to a 25bp hike every quarter, taking rates to 1.25% by year-end. Two further hikes in H1 2023 would leave rates at a terminal point of 1.75% by the middle of next year.” 

TDS

“We expect the MPC to hike Bank Rate to 0.50% and confirm that Gilts will start maturing off its balance sheet from March. The BoE needs to overdeliver to reverse some of GBP's recent misfortunes. That's unlikely, suggesting a near-term push towards 1.32, reflecting lingering GBP headwinds and further positioning adjustments in the short-term.”

Nordea

“We share the consensus view that the BoE will raise its key rate to 0.5% after the hike in December to 0.25% from 0.1%. Inflation is running hot in the UK, and the labour market is tight with wage growth on the rise. The UK economy has normalised while Omicron is a bump on the road. The phasing out of the restrictions this week will enable the economy to continue to grow. Against this background, a rate hike is more than justified. Moreover, the forward guidance suggests that the BoE may start to run off its balance sheet – halting reinvestments – as the key rate reaches 0.5%. We expect more guidance from the BoE on their intentions. Long-dated gilt yields have surged since December and the end of the reinvestment phase should make room for even higher long-term rates.”

Rabobank

“We expect the BoE to press ahead with a 25 bps rate increase to 0.50%. This would set passive balance sheet reduction in motion. The passthrough from the real income squeeze to real spending should become increasingly visible over the course of 2022 – making the central bank’s policy hostage to fortune. Unless imported cost pressures get embedded in the domestic wage-setting process, the central bank may find itself leaning into an already slowing recovery. We forecast a much less aggressive tightening cycle than what is currently priced in front-end rates, but the Fed’s hawkishness may provide the MPC some cover. We, therefore, look to add another 25 bps hike in May to our forecasts.”

ING

“It's becoming increasingly clear that Omicron's economic impact in the UK has been mild. That, combined with growing fears on the monetary policy committee about elevated headline inflation, suggests the Bank will increase rates by a further 25bp. That also means the threshold to kick-start balance sheet reduction will also have been met, and we'd expect the Bank to end reinvestments of maturing bonds imminently. Keep an eye open for what policymakers have to say on future rate hikes too. Markets, which are pricing roughly five rate rises this year, are likely overestimating what's to come. But we doubt policymakers will offer any material pushback at this stage. We expect a total of two or maybe three rate rises in total this year.”

SocGen

“The BoE meeting is likely to hike Bank Rate to 0.5% and allow, as specified in the updated exit strategy, the automatic reinvestment of maturing bonds in the QE portfolio to end.”

Deutsche Bank

“We expect the BoE to follow up their December rate hike with another 25bps increase, taking the Bank Rate to 0.5%. Furthermore, we expect that the MPC should confirm that any APF reinvestments will cease from here on out, resulting in around GBP38 B falling out of the Bank’s balance sheet this year.”

Danske Bank

“We expect the BoE to hike the Bank Rate to 0.50%. We expect two additional hikes this year (May and November) but risks are skewed towards more rate hikes. Markets are pricing in nearly five rate hikes this year. We expect the BoE to announce ‘passive QT’ (ceasing reinvestments of maturing bonds) in connection with the upcoming meeting. We expect ‘active QT’ (selling bonds to markets) when the Bank Rate reaches 1%. Our base case right now is that happens in November, but since we believe risks are skewed towards more rate hikes, risk is also skewed towards an earlier start for ‘active QT.’ We still think 0.83 is the bottom for EUR/GBP and seeing a case for a slight move higher to 0.84 in 12M in case the BoE is not as hawkish as currently priced.”

ANZ

“We expect the BoE will revise up its 2022 inflation forecast and raise the bank rate by 25bps to 0.5%. Tighter monetary conditions are warranted, especially as GDP is now above pre-pandemic levels. The case for emergency interest rate settings has diminished, and the BoE may update its thinking on QT, given that its balance sheet is close to 40% of GDP.”

BofA

“We expect the BoE to hike 25bp at its meeting this week, then 25bp in May and August. The UK has soft demand but also weak supply. We expect the BoE to confirm it will cease gilt reinvestments when it hikes in February, starting 'passive' Quantitative Tightening (QT). We expect the BoE to also begin active sales in November at an initial pace of GBP5 B a month.”

Citibank

“We now expect a unanimous 25bps hike this week, the beginning of passive QT and potentially more hawkish near-term guidance. The team’s bias remains towards a rapid but ultimately limited monetary tightening in H1-2022, which likely means a refocusing on a subdued medium-term outlook.”

ABN Amro

“We expect the BoE to raise its policy rate by 25bp – the first back-to-back rate rise since 2004. We now expect three rate hikes this year, up from two previously. Thereafter, we expect the Bank to shift to a more gradual semi-annual pace of hikes, with two hikes still expected for 2023. While we expect inflation to remain elevated in the UK over the coming year, price pressure should dissipate substantially in the second half of the year, which should leave the BoE comfortable with a more gradually sloping path for interest rates than markets are currently pricing in.”