BOE preview: waiting for the pivot

The Bank of England is the last of the major central banks to maintain its hawkish bias, however, when it meets for its first meeting of 2024 on Thursday, the market is expecting that this bias will be dropped, and instead the BOE will pivot towards an easing stance.

At this point in the monetary policy cycle, it’s not about actually easing, instead it’s about tweaks to communication and pivoting prior positions, which gets the market excited about potential rate cuts in the future. So, if the BOE is not expected to cut rates at this meeting, what is it expected to do? We think there are a few things to watch out for:

1, Downgrade its inflation forecast

This is expected to be the centre piece of this week’s Monetary Policy report, as the UK’s inflation picture has changed dramatically since November. UK CPI was 4% at the end of 2025, the Bank of England had expected CPI to end the year at 4.75%, and for inflation to reach the 2% target level by the end of 2025. However, there is a chance that the BOE will bring forward the date at which UK inflation will fall to 2% sometime this year. The BOE’s forecast for oil and gas prices are expected to be dramatically reduced for 2024, and lower wholesale energy prices should reduce household energy bills by the spring, further weighing on CPI. The UK was seen as a global outlier for most of last year, with higher inflation than its peers, however there is now a chance that the UK will become the first of the G7 nations to reach their inflation target. If th

BOE does forecast that inflation could reach the 2% target this year, then it will be a question of when and not if the BOE cut rates. MPC members may also be forced to change their rhetoric and open the door to future rate cuts.

2, A shift in voting patterns at the MPC

The vote split at this week’s meeting will also be worth watching closely. In November and December there were 6-3 vote splits in favor of maintaining rates at 5.25%, with three members voting for a rate hike to 5.5%. Catherine Mann, Megan Greene and Jonathan Haskell are all external members, and they are considered extreme hawks, who are in favour of higher interest rates. However, the recent moderation in price pressure in the UK could see Mann, Greene and Haskell change their tune this week and vote to keep rates on hold. There is also a chance that the most dovish member of the Committee, Swati Dhingra, could vote for a rate cut at this week’s meeting. If there is an 8-1 split at this meeting, it would suggest that there is less divergence of views at the BOE, after the Bank saw its members express very different views for most of 2023. This could be perceived as a softening of the BOE’s tightening bias, and it may suggest that the bar is lower for rate cuts down the line.

Image 1: the hawks and the doves at the Bank of England

Source: Bloomberg

3, The economic outlook

While inflation is moving in the right direction, the BOE will also be assessing the future direction of the labour market. Wage growth fell in December, according to the ONS, and grew at a 6.6% annual rate between September and November. While this is still elevated, adjusted for inflation, wage growth is 1.3% YoY, which is a more palatable rate of wage growth, and the latest labour market data should not hinder the BOE’s dovish pivot.

Overall, if the BOE does not think that interest rates need to go higher from here, then it is a sign that their 14 rate hikes in this cycle have worked to bring down inflation without causing the economy to fall into a deep recession, as some had feared.

Ahead of this meeting, the market believes the BOE will cut rates just over four times this year, and for rates to end the year at 4.13%. If the BOE does dramatically cut its inflation forecast to 2% this year, then we could see the market price in further rate cuts. It may also weigh on the pound and boost stocks, particularly domestic focused sectors like consumer discretionary and consumer staples.