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BofA Expects Bank of England to Maintain Key Rate in July Meeting; Potential Hikes Ahead

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BofA Global Research forecasts the Bank of England will leave its key rate unchanged at 3.75% at its monetary policy meeting on Thursday, with a 7-2 vote in favor of a hold and a "high risk" of a 6-3 vote.

"We expect the overall message to be balanced. We expect the MPC to keep the door kept open to a hike, but don't expect it to give a strong signal about an imminent hike either, given uncertainty and limited second round effects so far. But the recent rise in energy prices imply that risks are tilted to a hawkish tone. But we also think the MPC could push back against market pricing, which is currently pricing close to three hikes," the research firm said in a Wednesday preview note.

"Based on our expectation of lower energy prices in H2 and given soft growth/ labour market, BoE's high bar for action, limited second round effects so far and restrictive rates, we expect the BoE on hold through the year ... But it is becoming a closer call than before, given the recent reescalation and the risk of a hike is rising."

Analysts noted that markets have priced back in 50 basis points of cumulative bank rate hikes through July 2027, to 75 basis points as of late last week, following the recent collapse of the US-Iran ceasefire agreement.

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