BoE Preview: Forecasts from 10 major banks, eyeing a hat-trick caught between a rock and a hard place

The Bank of England (BoE) will announce its decision on Thursday, March 17 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 BoE is widely expected to raise the benchmark interest rate by 25 bps from 0.50% to 0.75%, marking a lift-off for a third consecutive meeting, amid Ukraine crisis-led uncertainty, growth concerns and raging inflation.

TDS

“We expect the MPC to hike Bank Rate by 25bps and signal further tightening, but with a cautious tone. We expect a single further hike this year, in May. A shifting UK macro mix of growth and inflation leaves GBP vulnerable, especially given the extent of BoE hikes priced into the curve.”

Rabobank

“We expect the BoE to press ahead with a 25 bps rate increase to 0.75%. The central bank is, however, stuck between a rock and a hard place. Stagflation risks are very real. Tighter monetary policy will create more of the ‘stag’ without being very effective against the ‘flation’. The recent surge in the price of imports makes it almost certain that inflation heads higher than the projected peak of 7.25%; even a double-digit rate of inflation can’t be ruled out. The passthrough from the real income squeeze to real spending should become increasingly visible over the course of 2022. We have added three more 25 bps hikes to 1.50% to our forecasts (May, June, August). If economic growth does indeed stagnate, these could very well be a prelude to cuts in 2023.”

ING

“We suspect the BoE will opt for another 25bp rate rise, rather than a larger 50bp move. Markets are once again pricing six rate rises this year, and comments from officials have offered some modest pushback against these expectations. Our own view is that after a couple more hikes, the committee is likely to pause and put greater emphasis on the deteriorating growth backdrop. After all, such a sharp rise in oil and gas prices is more likely to be medium-term disinflationary, even if it keeps headline inflation rates higher this year.”

Nomura

“In the absence of the Russia/Ukraine crisis having escalated there would almost certainly be more sizeable risks of the BoE delivering a 50bp hike. But in the event, geopolitical risks have intervened and a 25bp hike looks to be the most reasonable course of action for the MPC. Around 30bp is priced for the March meeting, reflecting around a 20% risk of a 50bp hike. No new forecasts are published by the Bank on this occasion but expect the minutes to say something about the Bank’s preliminary view on the potential impact of the war in Ukraine on the economy.”

Deutsche Bank

“We expect a +25bps hike to 0.75%, the pre-pandemic level. Our projected terminal rate is 1.75%.”

MUFG

“The BoE’s outlook for the UK economy will have deteriorated further since the February MPC meeting. We expect the BoE to acknowledge it the week ahead that inflation will hit an even higher peak and remain at higher rates for longer through until next year, but the BoE should still emphasize that inflation is more likely to undershoot their target further out because a larger slowdown in growth from the bigger energy/commodity price shock will be forthcoming. It will provide further pushback against market expectations for rate hikes that have gone even further to price in the BoE policy rate peaking at around 2.3%. We expect the BoE to stick to guidance that further ‘modest’ tightening is required.

Citibank

“We expect the MPC to continue on a hiking trajectory – with a majority continuing to back a further 25bp hike to Bank Rate this week and front-load the withdrawal of monetary stimulus.”

Wells Fargo

“We expect the BoE to raise its policy rate another 25 bps to 0.75%, with a further 25 bps hike also seen at the May meeting. By around mid-year, once higher prices start to weigh more meaningfully on consumer purchasing power and perhaps as inflation starts to recede, we do see some slowing in the pace of monetary tightening. Over the balance of the year, we see a further two 25 bps hikes at the August and November monetary policy announcements, which would see the Bank of England's policy rate finish 2022 at 1.50%. While that would represent a faster pace of rate hikes than we previously envisaged, it would still fall short of tightening currently priced in by market participants, which sees the central bank's policy rate finishing this year around 2.00%.”

Standard Chartered

“BoE will want to frontload rate hikes to address elevated inflationary pressures, and we continue to see 25bps moves at this week’s meeting and in May. Thereafter we expect the BoE to be more concerned over the growth impact, with the economy likely at risk from recessionary conditions from Q2- Q4. We, therefore, see the base rate climbing to 1.0% and remaining there for the remainder of the year, which is considerably less aggressive than the 6-7 rate hikes priced in by the markets by year-end.”

Credit Suisse

“We expect a 25bp along with 7-2 vote in that direction, with 2 votes for a 50bp hike. With some economists looking at UK inflation pushing close to 10% over the course of 2022, in our view, the BoE has a reasonable case to frontload rate hikes now while it can in order to help contain inflation expectations. Having been of the view that the BoE could deliver a hawkish surprise in both December and February, we are prepared to take this risk again this week and maintain our EUR/GBP 0.8275, target, which should also keep the 1.3000 level intact for GBP/USD. If we are wrong, and the BoE chooses to ignore its inflation mandate as many economists are calling for and delivers a ‘dovish hike’ that sees priced-in hikes dissipate, we would expect GBP/USD 1.3000 to break in short order and we would target 1.2870. Meanwhile, EUR/GBP would quickly test levels above its current 200-day moving average at 0.8472.”