Bank of England is expected to hold rates steady at 4.25% 📃
The Bank of England will join other European central banks today at 12:00 PM BST to announce its interest rate decision. Markets are pricing in a 90% probability that the BoE will keep rates unchanged at 4.25%.
Expectations 🎯
June Interest Rate Decision (12:00 PM BST, UK):
- Forecast: 4.25%; Previous: 4.25%
- MPC vote breakdown:
- To hold: Forecast 7; Previous 2
- To hike: Forecast 0; Previous 0
- To cut: Forecast 2; Previous 7
The expectation of a hold is backed by recent UK macro data. Inflation remains persistent despite a downward trend in Q1 (from 3% in January to 2.6% in March). However, the last two months showed inflation pressures returning above 3%. May’s CPI came in at 3.4% (0.1pp above forecast), reinforcing the case for keeping rates unchanged.
Wage growth has also returned to elevated levels, particularly when compared to 2013–2019, adding to inflationary pressure.
BoE Officials’ Views 👀
Governor Andrew Bailey emphasized that any rate cuts will be gradual and cautious. Key risks include sticky inflation, the escalation of conflict in the Middle East, and continued trade tensions.
Vice Governor Sarah Breeden and member Swati Dhingra are leaning toward earlier easing, while Chief Economist Huw Pill remains cautious due to inflation and potential tariff impacts. The consensus points to a 7-2 vote in favor of holding rates.
The next potential rate cuts could come in August and December, bringing year-end rates to 3.75%.
Decision Scenarios 🔎
- Base case (neutral tone):Â If BoE signals data-dependency and policy flexibility, expect limited market reaction and continuation of the slight GBP uptrend.
- Dovish tone:Â If comments reinforce expectations of near-term rate cuts, GBP could weaken while equities rally on lower capital costs. UK bond prices would also likely rise.
- Hawkish tone:Â A surprisingly hawkish stance could strengthen GBP further and weigh on FTSE 100 upside potential.
EURGBP
The pound is slightly weaker ahead of the announcement, but forex market moves remain modest. EURGBP is down 0.10% today to 0.85480.
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