BofA Global Research drops BoE rate hike forecast on easing inflation

Previously, BofA had anticipated two rate hikes in 2026. However, the firm now expects the central bank to maintain its current interest rate. For 2027, BofA forecasts a single 25-basis-point rate cut in November, a revision from its earlier projection of three cuts.

"We no longer have enough conviction to forecast hikes in our base case, but it remains a close call," BofA stated in a note. The firm also noted that the balance of risks still leans towards a hike this year due to potential re-escalation risks or strong second-round effects emerging.

This change in BofA's outlook follows the BoE's decision to keep its benchmark rate steady at 3.75% during its June meeting. Data released prior to the meeting indicated that British inflation held at 2.8% in May, remaining unchanged from April's 13-month low and falling below the expectations of both economists and the central bank itself.

Markets are anticipating persistent inflation stemming from oil price shocks to ease, particularly with a truce deal in place between the U.S. and Iran. Globally, central banks including the Bank of Japan and the European Central Bank raised rates in June, while hawkish projections from U.S. Federal Reserve policymakers suggest higher borrowing costs this year. Traders currently anticipate at least one 25 basis points rate hike by the Bank of England by year-end, according to LSEG-compiled data.