According to ING’s James Smith, the Bank of England (BoE) maintained its interest rate at 3.75% during its April meeting, despite ongoing concerns related to the Middle East crisis. ING now anticipates that the BoE will implement a single rate hike in June, revising its previous expectation that rates would remain unchanged throughout the year [1].
Governor Andrew Bailey indicated that the decision not to cut rates, which would have been likely before the onset of the Middle East crisis, effectively amounts to a tightening of monetary policy [1]. ING projects that UK inflation will peak slightly above 4% this year, but remains skeptical about the likelihood of a persistent inflation surge similar to that experienced in 2022 [1].
While market participants are currently pricing in the possibility of one or two additional rate hikes beyond June, ING expresses doubt about this scenario, emphasizing that the majority of the BoE’s committee members do not foresee a prolonged period of elevated inflation [1]. ING’s base case is now a single rate hike in June, with further increases considered unlikely at this stage [1].
CONCLUSION
ING expects the Bank of England to deliver a single rate hike in June, citing inflation concerns but expressing skepticism about a sustained inflation surge. The market is currently pricing in the possibility of additional hikes, but ING and the majority of the BoE committee remain unconvinced that further tightening will be necessary.