BoE: Holding fire with two-sided risks – Deutsche Bank

Deutsche Bank economists expect the Bank of England (BoE) to keep rates at 3.75%, stressing two-sided risks as growth forecasts are cut and inflation projections raised. They note that 2-year and 3-year Consumer Price Index (CPI) projections will be key signals, with a protracted overshoot seen as hawkish and CPI at or below 2% on those horizons viewed as marginally dovish.

Rate hold but CPI path crucial

“Looking at the day ahead, the main highlights will be the policy decisions from the ECB and the Bank of England.”

“For the Bank of England, it’s also widely expected they’ll leave rates unchanged today, keeping them at 3.75%.”

“Our UK economist expects they’ll emphasise the two-sided risks to the outlook, with a cut to their growth forecasts and an increase for inflation.”

“He writes that their forecasts and scenario projections will be important signalling tools, and he thinks that one thing to look out for will be where they put their 2yr and 3yr CPI projections.”

“That’s because a protracted CPI overshoot would be hawkish, whereas CPI at or below 2% on a 2yr or 3yr forecast horizons would be construed as marginally dovish.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)