BoE preview: will the central bank make another step towards a rate hike?
At a Glance
The desk anticipates that the Bank of England (BoE) will maintain the Bank Rate at 3.75% during today's meeting, with a possibility of one or two hawkish dissenters. Per the full note , while recent economic data has not urgently called for rate hikes, the persistent inflationary pressures, particularly in services, suggest that the BoE may signal a future rate increase, potentially as early as June. The market currently prices in a 63% probability of a June hike, indicating room for GBP appreciation should the BoE adopt a hawkish tone. This outlook contrasts with the FTSE 100, which may face downward pressure in such a scenario.
Full Analysis
What the desk is arguing
The desk believes that the BoE's decision to hold rates steady today does not preclude a hawkish shift in tone, particularly given the recent inflation data. Per the full note , while the latest UK CPI showed a modest rise in headline inflation to 3.3%, core CPI declined slightly, indicating a mixed inflationary landscape. However, the persistent rise in Services CPI to 4.5% underscores the risk of entrenched inflation, which could compel the BoE to tighten policy sooner than expected.
Moreover, the S&P Global PMIs indicate a concerning trend, with businesses reporting the steepest rise in cost burdens in over three years, driven by energy price shocks and wage pressures. This suggests that inflationary pressures are not merely transitory, reinforcing the desk's view that the BoE may need to act decisively to maintain its inflation targets.
Where it sits in our coverage
Our consensus target for GBP/USD is 1.075, with a range from 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - goldmansachs: 1.12 (Mar26)
This perspective aligns with jpmorgan's view but diverges from bofa, which holds a more cautious stance. The desk's outlook is positioned at the upper end of the consensus range, reflecting a more optimistic view on GBP appreciation.
How other firms see it
Firms like jpmorgan and goldmansachs share a similar bullish outlook on GBP, anticipating potential rate hikes that could strengthen the currency. Conversely, bofa remains skeptical, suggesting a more dovish approach from the BoE in the near term.
Traders should also monitor the EUR/GBP exchange rate, as shifts in BoE policy could create ripple effects across the currency pair. Additionally, the trajectory of UK inflation data will be critical in shaping market expectations for future BoE actions.
What the calendar says
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From the original
The Bank of England is expected to keep the Bank Rate unchanged at 3.75% today with one or two hawkish dissenters. At the last meeting, the BoE delivered a hawkish hold with unanimous decision to leave rates unchanged and the removal of the easing bias. Moreover, in the minutes,
Related speeches
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Why the Bank of England might not be as hawkish as you think
The desk believes that the Bank of England (BoE) is unlikely to adopt a hawkish stance in the near term, as indicated by the source commentary discussing the upcoming September 17 meeting. Per the full note, the expected 6-3 vote will likely see rates held steady at 3.75%, with inflation pressures remaining contained primarily to energy costs, particularly rising natural gas prices. With the consensus reflecting targets around 1.36 for GBP/USD, the market seems positioned for a cautious approach, and traders should watch for possible shifts in the BoE's communication regarding future rate hikes as energy prices evolve.
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