June 25 (Reuters) – BofA Global Research on Thursday dropped its forecast for the Bank of England to hike rates this year, terming it a ‘close call’ driven by lower energy prices, easing inflation pressures and a softer economic backdrop.
The brokerage, which previously forecast two hikes in 2026, now expects the central bank to keep rates steady.
For 2027, BofA sees just one 25-basis-point cut in November 2027, compared to three cuts earlier.
“We no longer have enough conviction to forecast hikes in our base case, but it remains a close call,” BofA said in a note.
“The balance of risks still leans towards a hike this year on re-escalation risks or strong second round effects emerging.”
BofA’s change in call comes shortly after the BoE’s decision to keep rates steady at 3.75% at its June meeting.
Prior to the BoE meeting, data showed British inflation held at 2.8% in May, unchanged from April’s 13-month low and below expectations of both economists and the central bank.
With a truce deal in place between the U.S. and Iran, markets expect persistent inflation stemming from oil price shocks to ease.
Central banks around the globe including Bank of Japan and the European Central Bank have raised rates in June, while hawkish projections from U.S. Federal Reserve policymakers have signalled higher borrowing costs this year.
Traders anticipate at least one 25 bps rate hike by the Bank of England by year-end, according to LSEG-compiled data.
(Reporting by Kanchana Chakravarty and Rashika Singh in Bengaluru; Editing by Ronojoy Mazumdar)
