BoE Preview: Forecasts from 10 Big Banks, Last Rate Hike?

The Bank of England (BoE) will announce its Interest Rate Decision on Thursday, September 21 at 11:00 GMT (18:00 IWST) and as the release time approaches, here are the forecast expectations of economists and researchers from 10 major banks.

The BoE is predicted to raise interest rates 25 basis points (bp) to 5.50%. A negative shock to August inflation on Wednesday could cause the Monetary Policy Committee (KKM) to signal the end of the interest rate hike cycle.

Rabobank

We forecast a 25 bp rate hike. This will increase the bank interest rate to 5.50%. Policymakers have recently considered a possible interest rate pause. Weaker PMI data and lower monthly GDP data raise fears of a more severe slowdown – the million pound question is whether this will be enough to eliminate entrenched inflation. Furthermore, we do not have any further interest rate hikes forecast, but we do see interest rates remaining at high levels. Traders have reassessed their outlook and see interest rates peaking at 5.55%.

TDS

While positive surprises in wage growth and services inflation indicate a risk of a 50 bps rate hike, weak growth and a rapid rise in the unemployment rate likely ensure policymakers will agree to a 25 bps rate hike. Forward guidance will likely continue to suggest that further evidence of persistence in core wages and services inflation will lead the MPC to raise interest rates further.

Deutsche Bank

We forecast a 25bp rate hike would take the Bank Rate to 5.5% and another hike, potentially the final one, in November.

ING

Markets are once again mulling over the idea of a break from the BoE. We certainly don't rule that out. The central bank may be tempted by a Fed-style “skip” policy this month, accompanied by strong hints that it could raise interest rates again in November. This is not our base case, given that wage growth and services inflation were higher than forecast in August. We expect the Bank to keep its options open in November, but ultimately we think the September meeting will mark the peak of this rate hike cycle.

Nomura

The end of the tightening cycle is near. We forecast another 25 bp rate hike at the September meeting and expect those who voted 50 bp in August to return to 25 bp at this meeting. We may also see more than one person disagreeing with interest rates not changing. If the Bank raises rates by 25bp, as we forecast, then the debate will turn to whether this will be the de facto end of the cycle. Our current call is for the Bank to raise interest rates again for the final time in November, although market assessments highlight the real risk that a tightening cycle will pose after the rate hike forecast this week. In this context, the KKM guidelines require careful monitoring. In August, KKM reiterated the need for further interest rate increases if inflationary pressures persist. While we expect similar sentiments to be echoed this time around, we also think the words could subside.

SocGen

We still predict the possibility that the MPC will raise the Bank Interest Rate for the final time by 25 bps to 5.5%. At the November meeting, we believe further easing in the labor market and weaker economic data will likely convince the KKM that they have done enough to control inflation. But if wages continue to exceed the Bank's forecasts, there is a risk of even greater tightening.

Danish bank

We forecast the BoE to raise Bank Interest Rates by 25 bp, even though August inflation released the day before showed ominous results. We forecast bank interest rates to peak at 5.50%. We see the market's current assessment that a policy rate peak of 5.60% is reasonable. EUR/GBP to end the day higher on dovish comments.

Citi

We expect the MPC to support the final 25 bp change, the fifteenth in a row. Another change is possible in November, but is unlikely due to signs of widespread economic weakness. KKM is in the process of transitioning to a more forward-looking policy approach. This is far from simple. A pause at the start of this week also makes sense, but with service inflation above 7% (and also forecast) and regular wage growth above 8%, this will attract the majority of people to support the move this week. In contrast, KKM may rely on the benefits of forecasts and MPR to explain potential holds. Guidance changes will likely be limited.

Wells Fargo

We anticipate that the BoE will again raise interest rates by 25 bp, bringing the policy interest rate to 5.50%. We believe the BoE stands out among the G10 central banks mainly because of the UK's uncontrolled inflation. The outlook for UK growth also remains gloomy, with our forecast that a recession will begin in the fourth quarter of 2023. Taking this into account, we believe the British Pound will underperform through the end of 2023 and 2024. Inflation remains a key concern for the BoE, with July YoY CPI figures in 6.8%, and core CPI also remained high at 6.9%. Although inflation has fallen from a peak of 11.1% in October last year, price growth is still far from the BoE's 2% inflation target. Overall, we strongly believe that the BoE will have to tighten further before inflation can be properly controlled.

ABN Amro

We forecast the BoE to raise its policy interest rate by 25 bp, bringing the Bank Rate to a new post-financial crisis high of 5.5%. We expect the KKM to maintain its openness to further rate hikes, but given the significant volatility in UK macro data over the past year, and the mixed signals provided by the economy, we think the Bank will continue to avoid providing clarity on forward guidance and instead maintain a tightening bias . Our base case is that this will be the last rate hike of the cycle. With unemployment rising and the energy crisis receding, our basic assumption is that wage growth will peak in the near future. This will convince KKM to be patient at future meetings and wait for the impact of previous interest rate increases to be fully realized. However, we expect rate cuts next year to be slower than the Fed's, as we expect core inflation to remain flat for longer in the UK than in the US.