BoE Preview: Forecasts from eight major banks, doves to carry the day

The Bank of England (BoE) is set to leave its policies unchanged on "Super Thursday" in which it publishes new economic forecasts. As we get closer to the release time, here are the expectations forecast by the economists and researchers of eight major banks. 

According to FXStreet’s Analyst Yohay Elam, GBP/USD may drop in response to the decision, but that could be temporary.

Deutsche Bank

“We expect there to be no change in the Bank’s policy settings, with Bank rate kept at 0.1% and the QE target maintained at £895 B. With CPI inflation now running at 2.5% and above the BoE’s target, we see the MPC preaching a patient message with regards to the outlook for now, before a more hawkish pivot occurs later this year once there’s further clarity on the state of the economy coming out of the pandemic.”

ING

“We expect the BoE to strike a cautiously optimistic note though crucially we’re unlikely to get any fresh hints on the possible timing of future hikes. Nor are we likely to see an early end to the Bank’s QE programme – something BoE hawk Michael Saunders has recently advocated. There is however an outside chance that we hear more about the Bank's future balance sheet reduction plans - which is likely to happen at a much earlier point in the future tightening cycle than policymakers had previously signalled. We expect the first rate hike in early 2023.”

SocGen

“As yet, no replacement has been announced for Andy Haldane so there will be only eight members at the meeting. We expect a unanimous vote for an unchanged Bank Rate of 0.1% but a 6:2 vote to maintain the current asset purchase stock target of GBP895 B to be reached by the end of the year. Saunders and Ramsden will probably vote to end the asset purchases well before the end of the year. The minutes should report that all necessary adjustments have now been completed by the Bank and the banking industry to make a negative Bank Rate feasible but will repeat that this should not be taken as a signal that this tool will soon be used.”

TDS

“The MPC will need to balance strong inflation and employment data against early signs of a slowdown in demand. But despite recent calls by 2 MPC members to reduce QE, many on the MPC have come out more recently to push back. We look for unchanged policy, but a slightly more optimistic tone on the outlook and some concern on inflation.”

Rabobank

“We don’t expect any changes to the Bank rate at this week’s meeting. We also don’t expect the MPC to offer any clues on under what conditions a first hike would come. The central bank plans to finish its net asset purchases at the end of the year. One or two policymakers may vote for winding up the net asset purchases early. Such a decision merely creates uncertainty, while its economic impact is insignificant. The MPC has underestimated the rise in inflation, but this doesn’t justify a hawkish turn. The relevant policy horizon is further out, and several real time indicators suggest that the recovery has already started to moderate.”

MUFG

“We are not expecting the BoE to announce it will end QE sooner than in December, but there is scope to further slow the pace of weekly purchases. At the same time, we expect the BoE to endorse current market pricing for a rate hike by next summer by showing inflation at or around target in 2-3 years’ time with upside risks. The BoE will also announce results from their policy sequencing review which is expected to modestly lower the policy rate threshold to begin quantitative tightening (currently 1.50%).”

Citibank

“The UK economic outlook remains in flux in multiple ways, so for a majority of the MPC at this week’s board meeting, it probably remains too early to take decisions on policy stance. However, with inflation spiking up and the economy on track for a strong recovery so far, patience may be wearing thinner in some quarters of the Committee. We do expect some hawkish twists with a likely 1-2 dissenting votes to end QE early as well as hawkish minority arguments about rates lift-off timing in Minutes. There's also a chance MPC announces a new exit strategy which could bring forward balance sheet reduction. But, there is only an outside chance of guidance changes towards an earlier lift-off in rates. This week’s BoE meeting may not be a market mover by design – market expects QE completion – but risks are skewed hawkish. Lift-off pricing has already been brought forward to H1 2022 and markets keenly await news on sequencing, with risks tilted to an early QE unwind.”

Standard Chartered

“The BoE is unlikely to make policy changes with the base rate remaining at 0.1% and the QE target remaining at GBP895 B. We would not be surprised if Michael Saunders and/or Dave Ramsden voted to reduce the target stock of assets but we expect the majority of members on the Monetary Policy Committee to stay the course. We continue to expect the gilt target of GBP875 B to be reached before the end of the year, and no expansion of the target thereafter. The spread of the delta variant will remain a key concern, despite the recent fall in daily cases, and we would not be surprised if near-term growth projections (Q3) edge slightly lower as a result. Inflation also looks set to rise faster than previously expected given a host of domestic and global factors. We expect this to be confirmed in the BoE’s year-end inflation forecast following its June report; the forecast could rise beyond 3.0% (up from 2.5% in the May projections). We nonetheless expect BoE commentary to be largely dovish, citing one-off or transient factors as responsible for the inflation surge, and receding heading into 2022, with CPI returning to target over the medium term. Negative interest rates are set to be formally adopted as a tool at this meeting, but we do not expect this to be introduced anytime soon. More important would be any hints at sequencing with respect to rate hikes and QE unwinding in the future. While unlikely to come at this meeting, we expect the BoE to prioritise rate normalisation.”