Bank of America Adjusts Forecast, Expects Bank of England to Hold Interest Rates Steady

Investing.com – Bank of America has revised its forecast for the Bank of England, now expecting the central bank to keep interest rates unchanged at 3.75% in March, rather than cutting rates, citing recent rises in energy prices.

The bank stated that the increase in energy prices could lead the Bank of England to adopt a wait-and-see approach to monitor the persistence and scale of this shock. Bank of America expects a voting result of 7-2, with a 6-3 risk.

The firm has delayed its expected rate cuts to June and September, previously forecasting March and June. Bank of America said that if the energy price shock is relatively short-lived and does not substantially raise inflation expectations, further rate cuts remain possible.

The bank pointed out that interest rates are restrictive, with anti-inflation fiscal measures set to take effect in April. Wage growth is slowing, downside risks to growth are increasing, and the labor market remains somewhat weak.

Bank of America stated that its confidence in two rate cuts in June and September is limited, noting that the scale and persistence of energy price changes will create significant uncertainty for inflation and the rate path.

The firm said that if energy prices reverse before then, a rate cut could come earlier in April. However, if the conflict persists longer, the risks include further delays in rate cuts and fewer cuts this year. If the conflict extends into the second quarter, with longer-lasting or larger price swings, concerns may grow about whether the Bank of England can cut rates twice this year, making a single cut more likely.

If energy prices continue to rise into the second half of the year, rate cuts may not occur, and in some cases, rate hikes could even be possible. However, Bank of America noted that the threshold for raising rates could be quite high.

Bank of America expects the Bank of England to maintain a dovish stance in March but will note that uncertainty has increased. The bank may emphasize that the threshold for rate hikes remains high.

Regarding the pound, Bank of America said that the pace of geopolitical developments indicates the Bank of England remains firmly in a wait-and-see mode. The bank also noted that, given the current trend driven by oil price movements, this meeting is unlikely to have a significant impact on the pound.

This article was translated with the assistance of artificial intelligence. For more information, please see our Terms of Use.