BofA Global Research said on Thursday it no longer expects the Bank of England to deliver more rate increases this year, describing the shift as "a close call" driven by lower energy prices, easing inflation pressures and a softer economic backdrop.
The brokerage had previously penciled in two hikes in 2026 but has revised that outlook and now anticipates the central bank will maintain its current stance. For 2027, BofA now projects a single 25-basis-point cut in November 2027, down from an earlier forecast that included three cuts.
"We no longer have enough conviction to forecast hikes in our base case, but it remains a close call," BofA said in a note summarizing its revised outlook. The note added: "The balance of risks still leans towards a hike this year on re-escalation risks or strong second round effects emerging."
The change in the research house's outlook followed the Bank of England's decision at its June meeting to hold the policy rate steady at 3.75%.
Ahead of that meeting, official data showed British inflation remained at 2.8% in May, unchanged from April's 13-month low and below the expectations of both economists and the central bank. That persistence of subdued inflation helped push BofA to downgrade the likelihood of further tightening in the near term.
Market sentiment has been influenced by developments in oil markets as well. With a truce deal in place between the U.S. and Iran, markets now expect that inflationary pressure from oil price shocks is likely to ease, a factor cited by BofA in reassessing the path for policy.
At the same time, central banks elsewhere have been active. The Bank of Japan and the European Central Bank raised rates in June, and hawkish commentary from U.S. Federal Reserve policymakers has signalled the prospect of higher borrowing costs in the United States this year.
Despite BofA's revised baseline, market pricing still reflects some chance of additional tightening by the Bank of England. Traders, according to LSEG-compiled data, are pricing in at least one 25-basis-point rate hike by the Bank of England by the end of the year.
Key takeaways
- BofA Global Research has dropped its forecast for Bank of England rate hikes this year, previously forecasting two hikes in 2026.
- Inflation holding at 2.8% in May and lower energy price pressure following a U.S.-Iran truce contributed to the revised outlook.
- Markets and traders still price in a possibility of at least one 25 basis-point hike by year-end, while other major central banks moved higher in June.