GBP: BoE holds as energy shock clouds outlook – Nomura

Nomura’s George Buckley and team expect the Bank of England (BoE) to leave Bank Rate unchanged at 3.75% next week, with a likely 8-1 vote and Huw Pill as the sole hawk. They see higher inflation and slightly weaker growth in new forecasts, no rate moves through end-2027, but asymmetric risks of near-term hikes and later cuts.

MPC seen on prolonged policy hold

"The Bank of England announces its rate decision and publishes a new set of forecasts next Thursday at midday. We expect no change in rates, with one member voting for a hike, fuller guidance, notably higher inflation and modestly weaker growth forecasts."

"A hold decision from the MPC next week looks highly likely. Even financial markets, which are pricing in more than two hikes before year-end, see only a 2-3bp risk of a hike on 30 April."

"On balance, however, we judge that an 8-1 vote for a hold is likely, with Pill being the lone voice for a rate hike this time."

"We see no further moves in policy rates this year or next, though we judge the risks as being to the upside in the near term and to the downside further ahead. Should these risks materialise (hikes followed by cuts) it may not be a ‘policy mistake’; rather the Bank being nimble in initially taking out insurance against second-round inflation effects, then having to reverse course thereafter."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)