BoE to maintain rates steady until after the elections - BofA

Bank of America expects the Bank of England (BoE) to hold rates steady at its upcoming policy meeting, citing a lack of evidence to warrant a cut and the upcoming UK election.

"We expect the Bank of England to keep the Bank Rate and guidance unchanged at next week's policy meeting," predicts BofA. They anticipate a 7-2 vote in favor of holding rates.

The bank's guidance will likely remain focused on upcoming data to assess if inflationary pressures are truly easing, according to BofA.

"April's inflation and wage data showed little progress in the sticky components," says BofA, "This supports our view that the BoE is likely to keep rates on hold in June." More evidence is needed to confirm a slowdown in services inflation and wage growth.

BofA highlights the added complexity of the June meeting due to its proximity to the UK election, creating a "political dimension to the decision."

The inflation data released just before the meeting (May) poses another potential hurdle. "We expect headline inflation to fall...in May," states BofA. However, "another upside surprise in May inflation would further challenge the BoE's judgement."

Looking ahead, BofA forecasts the BoE to begin cutting rates in August, assuming some temporary inflation spikes unwind. They predict a "cautious reduction of restriction" with two cuts this year (August and November) and four in 2025, bringing the Bank Rate to 3.75% by year-end 2025.

BofA concludes by acknowledging the potential for volatility surrounding the meeting, similar to the recent US Federal Reserve decision with a key inflation report released just before the rate announcement. They hope the BoE meeting will be a "snooze" but acknowledge the market's differing expectations on the pace of future rate hikes.

By Sam Boughedda

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