BoE: Banks Preview, another 25 bps hike, but will it be the last?

The Bank of England (BoE) will announce its interest rate decision on Thursday, May 11 at 11:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of 10 major banks.

This is a Monetary Policy Report meeting, so we will have updated the forecasts for growth and inflation. The BoE is widely expected to raise rates by 25 basis points (bps) from 4.25% to 4.50% in May.

Danske Bank

“We expect the BoE to hike the Bank Rate by 25 bps. We expect this to mark the peak in the Bank Rate of 4.50% as the BoE is set to signal a pause in the hiking cycle.”

TDS

“We expect the MPC to hike Bank Rate by 25 bps and leave guidance unchanged and data-dependent. The vote is likely to shift to one more dovish dissent, signalling an approaching terminal. Projections are likely to show weaker medium-term inflation too. But the MPC isn't done yet – we expect one final hike in June.”

Rabobank

“The BoE will keep the streak of rate increases going. We expect a 25 bps hike to 4.50% with another net dovish vote split. The MPC has messaged multiple times that its appetite for further rate increases is fading, yet we expect that it will leave its key guidance unchanged. We hold on to our long-held view of a terminal rate at 4.75% in June but see upside risks. We expect the Bank of England staff to revise up the near-term growth and inflation outlook. A significant medium-term inflation undershoot is likely to be maintained in the forecasts.”

Nomura

“We expect the BoE to raise rates by 25 bps. While we see the risks to our central view as tilted towards zero rather than 50 bps (especially with renewed banking concerns), we think the chances of something other than a 25 bps hike are low. This is a MPR meeting, and we expect the Bank to remove much if not all, of the recession that it had been expecting previously. The Bank’s end-horizon inflation forecasts still look very low, and we would not be surprised – especially with core inflation looking sticky and with stronger GDP forecasts – if the Bank was to raise its expectations. We see the Bank raising rates again by 25 bps in June for a peak of 4.75%. Thereafter, we see rate cuts from the second half of 2024 to take rates back down to 3.50% by early 2025.”

SocGen

“The MPC is likely to hike Bank Rate by 25 bps to 4.5%. The Bank will no longer forecast a recession, implying a smaller output gap and greater inflation pressures. The inflation profile for this year should be tweaked to reflect higher-than-expected outcomes in 1Q. However, the energy futures curve out to three years has fallen a little over the three months since the last set of forecasts. This should offset the smaller output gap, resulting in a forecast at the three-year horizon that is no higher, and possibly a little lower, than the previous forecast. The fundamental concern of the MPC is that currently excessively high inflation, coupled with a still-very-tight labour market, will lead to persistently high inflation even after the energy and food price shocks fade. This brings a significant risk that the committee will signal that further rate increases will still be possible after this hike. We will revisit our current forecast of a 4.5% peak after the meeting.”

ING

“We expect a 25 bps hike this month, but it’s likely to be the last. We doubt the Bank will want to shut down its options on Thursday – another unhelpful set of data over coming weeks would pile on the pressure for them to do more in June. Expect the Bank to retain its data-dependent guidance that implies further tightening is possible, though the clear dovish risk is that the Bank ‘does a Fed ‘and waters down this guidance further, perhaps removing the bit about further tightening.”

Citi

“The MPC meeting is unlikely a major market mover, but the risk vs base case is perhaps dovish. The MPC is most likely to deliver a 25 bps hike (as fully priced) to a cash rate of 4.5% and keep forward guidance unchanged (with a conditional tightening bias). Voting however is likely to be split once again on a hike vs a pause (7-2), as it has been for the last three meetings (noting that Tenreyro only has two meetings left and could even consider a vote for a cut in May and/or June as a parting gesture). The MPC is still waiting for permission to pause, but incoming data, so far, won’t allow it. There still has to be a point soon, however, when the MPC reverts to a forward-looking approach that deals with policy lags and necessarily trusts its projections. While there have been upside CPI/wage surprises, the May projections will be the first to assess the impact of credit conditions following recent banking sector events. Net, another set of dovish forecasts seems likely.”

Wells Fargo

“Our forecast is for the BoE to raise its policy rate by 25 bps to 4.50%. While we believe this could be the final rate hike of the current cycle, depending on how quickly inflation slows from here and whether growth softens as well, we acknowledge the risks are clearly tilted toward further tightening. Indeed, the updated economic projections in the May MPR could offer insight into the prospects for further tightening. Should the BoE forecast steadier growth and, in particular, raise its inflation outlook to project above target inflation over the majority of its forecast horizon, we would be inclined to forecast a peak policy rate higher than our current target of 4.50%.” 

Deutsche Bank

“We expect the BoE to deliver a 25 bps hike, leaving the Bank Rate at 4.5%, and while they do not anticipate any major changes to forward guidance they acknowledge there is a risk that the MPC leans dovish. Further out, we expect a final 25 bps hike in June, while underscoring upside risks to their terminal view.”

Crédit Agricole

“We expect the MPC to deliver a 25 bps hike but maintain its noncommittal stance on future tightening. We therefore think that UK rates markets have got ahead of themselves yet again pricing in too aggressive BoE tightening in coming months. A reassessment of these views could add to the headwinds for the GBP and thus limit any gains.”