BoE Preview: Forecasts from 10 major banks, a close call between 50 bps and 75 bps

The Bank of England (BoE) is set to announce its interest rate decision on Thursday, September 22 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.

The BoE is set to raise the key rate by another 50 bps to 2.25% but Governor Bailey could surprise with a 75 bps hike. The “Old Lady” is also expected to confirm the beginning of outright sales from its GBP838 billion gilt stockpile, at a pace of around 10 billion pounds a quarter.

Credit Suisse

“We are in the camp that sees only a 50 bps rate hike with also a low terminal rate of just 3.50%. Under that scenario, dramatic curve steepening could ensue which would keep GBP on the back foot vs USD longer-term.”

BofA

“We expect the BoE to vote 1-7-1 vote in favour of a 50 bps Bank Rate hike. We look for Silvana Tenreyro to support a 25 bps hike and Catharine Mann a 75 bps hike. We expect the BoE to continue guiding to continued hikes and to note the importance of future fiscal announcements. We point to downside risks to the sterling. Another 5% trade-weighted sterling fall from here, for instance, could in our view raise medium-term inflation another 40-50 bps. That would necessitate perhaps two more 25 bps rate hikes. A larger depreciation could have a bigger impact on the BoE's policy choices. We see the BoE as reactive rather than proactive on the currency. Potential sterling falls pose upside risks to our rate forecast.”

Danske Bank

“We expect BoE to hike the Bank Rate by another 50 bps but acknowledge that it is a close call between 50 bps and 75 bps. We expect further 50 bps hikes in both November and December followed by 25 bps in February. Hence, we lift the end point of our projection to 3.25% (prev. 2.50%). We expect fewer hikes than priced in markets as we emphasise the rising recession risk. In our base case, we expect EUR/GBP to rise upon announcement.”

Swedbank

“We believe that the BoE will hike by 75 bps in September, followed by a 50 bps hike in November and 25 bps in December, reaching 3.25%. After that, BoE will leave rates unchanged until end-2023, when we expect BoE to gradually lower its policy rate.”

TDS

“We expect the MPC to hike Bank Rate by 75 bps in September, and by 50 bps at each of its November and December meetings, reaching a terminal rate of 3.50% by year-end. We expect rate cuts from 2023H2. We also expect the MPC to approve the start of asset sales at a pace of GBP10 bn/qtr at this meeting. We don't think the BoE can do much to rescue the faltering GBP, reflecting the importance of global factors.”

ING

“We narrowly favour a 50 bps hike taking the Bank Rate to 2.25%, although 75 bps is clearly on the table and we would expect at least a couple of policymakers to vote for it. The announcement of an energy price cap from the government will drastically lower near-term CPI, reducing concerns about consumer inflation expectations becoming de-anchored and reducing the urgency to act even more aggressively. However, the hawks will be worried about the recent independent sterling weakness, and will also argue that the government’s support package could increase medium-term inflation given it reduces the risk of recession. That means it’s a close meeting to call, but if we’re right and the committee does move more cautiously than the Fed and ECB, then we expect another 50 bps move in November and at least another 25 bps in December. That would take Bank Rate to the 3% area.”

SocGen

“We expect the MPC to vote for another increase in Bank Rate of 50 bps, taking it to 2.25%, and confirm its plans to commence active gilt sales. Together with the run-off of maturing gilts from the APF portfolio, the total reduction in the stock of gilts should be GBP80 bn over one year.”

Commerzbank

“It is still unclear whether the BoE will deliver 50 or 75 bps but one way or the other we see little upside potential for sterling.”

Deutsche Bank

“We expect the MPC to vote for a second consecutive 50 bps hike, albeit along divisive lines, with dissents favouring both a 25 bps and a 75 bps move likely surfacing. On the balance sheet, the MPC should confirm the start of gilt sales from later on this month, totaling GBP10 bn per quarter. We expect the BoE’s terminal rate will be 4%, reached in May of next year.”

Wells Fargo

“We expect the BoE to raise its policy rate 50 bps to 2.25% and follow up thereafter with a 50 bps rate increase in November and a 25 bps increase in December. This would see the BoE's policy rate peak at 3.00% by the end of this year. We expect the BoE's policy rate to remain steady through much of 2023, before a modest 50 bps of easing from the UK central bank in Q4 next year. As the BoE raises interest rates less aggressively than what markets are pricing, the British pound should remain under pressure over the next few quarters, especially as the Fed looks to raise interest rates aggressively to combat elevated inflation in the United States.”