TD Securities economists anticipate that the Bank of England (BoE) will maintain its Bank Rate at 3.75%, with a 7-2 vote expected as Greene joins Pill in advocating for a rate hike, while the majority of the Monetary Policy Committee (MPC) members are projected to remain on hold due to ongoing evaluation of the trade-off between persistent inflation and softening demand [1]. Recent data shows headline inflation has eased to 2.8% year-over-year and core inflation to 2.5% year-over-year, both coming in below market and BoE forecasts, which supports the case for holding rates steady [1].
Despite the recent disinflation, TD Securities notes that the decline was primarily driven by administered price base effects rather than underlying monthly dynamics [1]. Looking forward, there are upside risks to inflation, particularly from the Ofgem price cap increase of 13.5% set for July and anticipated rises in airfare prices during the summer [1]. As a result, TD Securities has revised its medium-term inflation forecast, now expecting inflation to peak at 3.8% year-over-year in November [1].
Given these factors, TD Securities has delayed its projection for the BoE's final rate cut from November to April 2027, expecting the Bank Rate to remain at 3.75% through 2026 before eventually moving down to a neutral rate of 3.50% [1]. The economists emphasize that the MPC is unlikely to justify rate cuts while inflation is on the rise [1].
The market implication is that the BoE is expected to maintain a hawkish hold, with the possibility of dissenting votes for a hike, but the majority favoring caution due to softening demand and ongoing inflation risks [1].
CONCLUSION
The Bank of England is expected to keep rates unchanged at 3.75% as inflation risks persist, with a hawkish tilt reflected in potential dissenting votes for a hike. Market participants should anticipate a prolonged hold on rates, with the next cut now projected for April 2027, as the BoE prioritizes inflation containment over immediate easing.