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 source, 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 source, 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
4 itemsBoE leaves bank rate unchanged at 3.75% in June meeting, as expected
ECB preview: a hawkish hold is expected but there's risk of a disappointment
The European Central Bank (ECB) is poised to maintain its policy rate at 2.00% amid a backdrop of rising inflation and mixed economic signals, suggesting a cautious approach moving forward. Per the full note [source], the ECB's forward guidance is expected to remain non-committal, emphasizing a data-dependent stance. Market participants are particularly focused on the press conference for insights into the ECB's reaction function, especially given the recent increase in headline inflation driven by energy prices. The market is currently pricing in 80 basis points of tightening by year-end, with a high probability of a June rate hike, which may lead to disappointment if the ECB adopts a less hawkish tone than anticipated.