The Bank of England is expected to keep interest rates on hold at its June meeting with a 7-2 vote, while maintaining its careful and gradual guidance on future rate cuts.
According to Bank of America on Tuesday, the UK’s central bank is projected to implement three more 25 basis point cuts to the Bank Rate in August, September, and November, despite some concerns about elevated domestic inflation potentially putting the September cut at risk.
The minutes from the upcoming meeting will likely indicate that progress in underlying inflation continues, suggesting a low likelihood of a summer pause in the quarterly cutting cycle, barring any significant upside surprises in May inflation data.
While April showed inflation strength, this trend is expected to reverse in May. Bank of America forecasts inflation at 3.0% in 2025 and 2.2% in 2026, with a quarterly peak of 3.3% in the second and third quarters of 2025.
The UK/US trade deal is expected to limit severe growth downside risks, though growth projections remain lower than pre-"Liberation Day" estimates, which assumed 10% tariffs would be in place. Bank of America projects growth of 1.1% in 2025 and 1.3% in 2026.
In currency markets, seasonal pound underperformance and softer macro data have driven recent price movements.
However, Bank of America’s pound sterling dashboard doesn’t indicate markets are taking an increasingly bearish stance toward the currency, though positioning remains a concern ahead of the July 9 tariff deadline.
For UK rates, Bank of America maintains a constructive view, particularly favoring 30-year Gilts.
This outlook is based on optimism about the UK Debt Management Office’s proactive approach, expectations for a slowdown in quantitative tightening, and the UK’s improved international investment position.
Investor sentiment surveys conducted between June 6-11 show neutral levels for pound sterling positioning and modestly bullish levels for duration, with investors indicating a preference for UK duration over US duration.
