Preview of the Bank of England Possible Decisions

Later today, the Bank of England (BoE) will release its most recent interest rate decision. It is widely anticipated that policymakers will maintain current rates at 5.25% for a sixth straight meeting.

This decision is being made when inflation, which is now at 3.2%, is still higher than the Bank's 2% objective.

Even though analysts believe the Bank to maintain interest rates at their current 16-year high on Thursday, many believe that this summer will see the first rate decrease.

On May 9, we anticipate that the BoE will maintain the Bank Rate at 5.25%. According to a recent note from UBS analysts, "the focus is likely to be on any signals on the timing of the first rate cut and the MPC's updated macro projections."

The company outlines the Monetary Policy Committee's (MPC) potential preference for August over June for two main reasons.

First, it could be a good idea for policymakers to evaluate how the 9.8% rise in the national living wage that went into effect on April 1st will affect total wage growth. The Committee will only have access to one piece of data on wages after the hike before the June meeting; that data point, the average weekly earnings for April, which is scheduled to be released on June 11, might not be enough to draw firm conclusions.

Second, according to UBS experts, the June meeting will not feature a news conference or revised macroeconomic estimates.

UBS stated that it expects the BoE's revised predictions to contain modest downgrades to both GDP and inflation estimates.

Two key shifts are evident from February: first, a more aggressive policy rate path, with markets projecting a bank rate of 4.8% by the end of 2024 and 4.3% by the end of 2025; second, an increase in oil prices, potentially raising the 2024 oil price assumption by more than 10%.

Higher rates, however, ought to counteract the inflationary pressures brought on by rising oil prices, resulting in a small drop in inflation to 2.5% in 2025 and 2.75% in 2024. According to UBS, growth projections for 2024 and 2026 will likewise witness some slight decreases.

(Sources: investing.com, reuters.com)