The Bank of England is expected to keep its benchmark interest rate unchanged at 3.75% at its meeting this week, according to UBS analysts. Market expectations align with this view, pricing in a minimal 2.5 basis point increase.
UBS forecasts the vote split will remain at 7-2, matching the previous meeting, with Megan Greene and Huw Pill expected to vote for a 25 basis point rate hike. Catherine Mann may join them in supporting a hike following her recent speech emphasizing upside risks to inflation, though UBS considers this less likely given recent softer inflation data.
Inflation came in lower than expected over the past three months, including June’s reading released Tuesday. The latest Decision Maker Panel survey showed only a modest increase in wage and inflation expectations in June.
UBS expects the Bank’s updated scenarios to show downward revisions to near-term inflation forecasts, reflecting lower energy price assumptions compared to April. The government’s decision to cut the VAT rate on electricity bills in October is expected to reduce headline inflation by 0.1 percentage point.
The Committee is likely to emphasize that future policy will depend heavily on how the Middle East conflict evolves, UBS said. The central bank is expected to reiterate its message that it “stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term.”
UBS anticipates the next policy move will be a rate cut in February and April 2027, contrasting with market pricing of 44.5 basis points in increases by year-end. The firm believes the Bank can address second-round inflation effects by maintaining rates at the current restrictive level without further hikes.
Source: Investing.com