Bank of England unlikely to hike rates over next two years, says Lloyds Bank

Market projections in the recent months have implied that the Bank of England’s monetary policy was expected to be side-lined as a main driver of the GBP/EUR pair. Implied pricing still shows that both the Bank of England and the European Central Bank are expected to keep their respective headline policy rates on hold for the remainder of this year. But after their meetings last month, the market has been forewarned to the prospect of both central banks changing their stances, noted Lloyds Bank in a research report.

The U.K. central bank kept its base rate at 0.35 percent. The Monetary Policy Committee had voted 8-1 to keep the rate on hold. Kristin Forbes, amongst the most ‘hawkish’ on the committee plumped for an immediate rise in interest rates. The market was caught off guard by this, noted Lloyds Bank. But a broader change in view throughout the MPC appears quite unlikely at present.

The recent data of the U.K. retail sales showed a decline of 1.8 percent, whereas the quarterly rate of growth for the first quarter showed a drop of 1.5 percent, which is the sharpest quarterly decline since 2010. The dismaying consumer activity in an environment of increasing prices and stagnate wages, is a main risk underlined by the BoE. Thus, it appears quite unlikely that the MPC as a whole will move towards being in favour of tightening against this backdrop. The Bank of England is unlikely to hike rate over the next two years, added Lloyds Bank.