The Bank of England meets on Thursday, 20 March, and is expected to hold interest rates steady at 4.50%, following a quarter-point cut last time out.
At the February meeting, there was a 'dovish' split of the vote, with two members of the BoE's monetary policy committee (MPC) voting for a larger 50bps rate cut.
Inflation projections were also significantly upgraded and the MPC emphasised greater weight on a scenario in which a period of economic slack was necessary to bring inflation sustainably back to target.
Economic data has been stronger than expected, UBS economists noted, including GDP growth of 0.10% in the fourth quarter of 2024, above the BoE's forecast of -0.10%. But January CPI inflation also rose to 3.00%, worse than expectated.
UBS noted a shift in the stance of Deputy Governor Dave Ramsden, who now sees inflation risks as more balanced, but there was "a notable shift" in the stance of the previously more dovish Ramsden, who said that he no longer sees risks to the inflation outlook as being skewed to the downside but rather being two-sided.
Looking ahead, UBS anticipates three additional 25 basis point rate cuts in 2025, in May, August, and November, bringing the Bank Rate to 3.75% by year-end. The forecast is more dovish than market expectations, which price in just over two cuts.
“Despite our inflation forecast foreseeing inflation hovering around 3% this year, we think that ongoing improvement in underlying services inflation should allow the Bank to continue with its gradual approach to easing,” UBS added.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, agreed that amidst financial markets being hit with "waves of trepidation" about what’s in store for global trade, the BoE is set to stay in wait-and-see mode.
“It’s highly unlikely, given the current climate of uncertainty, that policymakers will vote to cut rates this month."
Indeed, agreed ING economist James Smith, 2there’s little that’s happened since the February meeting that will have caused officials to shift their position" and a rate cut is "highly unlikely" this week, given the MPC’s well-established pattern of cutting rates once per quarter.
When it comes to the vote split, Smith suspected there will be either a repeat of February’s 7-2 vote in favour of no change, or perhaps a 6-3 split, with Alan Taylor joining Swati Dhingra and Catherine Mann in dissenting, as he did back in December.