Bank of America predicts one more hike from Bank of England and ECB

investmentweek.co.uk:

BoE governor Andrew Bailey (pictured) emphasised several times during the press conference on Thursday that interest rates constant at current levels for the next three years delivered a similar inflation forecast to following the market path. Image: Bank of England

On Thursday (3 August), the BoE raised interest rates by 25bps to 5.25% on Thursday (3 August), the highest level since 2008. However, the central bank's narrative continued the shift beginning in its June guidance away from how many more hikes to «high for long». 

In a research note, BofA analysts pointed out that the Bank added two sentences to its guidance. First, noting that policy is restrictive and second, that the central bank would hold policy restrictive for long enough to bring inflation down to its 2% target.

Bank of England hikes rates by 25bps to 5.25%

«These additions suggest that the BoE prefers a policy of holding at terminal for longer to hiking more and cutting sooner,» they said. 

According to the BofA, the BoE is shifting away from focusing on where the terminal is and towards the policy stance needed over the next couple of years. 

While traders are placing bets for a 5.75% terminal rate, the Bank of America expects one more 25bp hike in September to 5.5% terminal, with the first rate cut coming in February 2025.

Barclays, UBS, BNP Paribas joined the BofA in lowering their Bank of England terminal rate forecast, now expecting the central bank's main rate to peak at 5.5%. The banks had previously predicted a peak of 5.75% before Thursday's meeting.

Other banks such as JP Morgan, Goldman Sachs, Citigroup and Deutsche Bank still see the Bank extending its tightening cycle to November for a peak rate of 5.75%.

The Bank of England's job 'is