Bank of England rate preview: economic forecasts key as UK recovery takes shape

The Bank of England are likely to revise growth high, but will they also trim asset purchases to ensure a longer term?

When and where?

The Bank of England (BoE) will commence their latest monetary policy announcement at midday, on Thursday 6 May 2021.

Tune in to IGTV’s live BoE announcement and analysis at 11:55 AM BST on Thursday in the IG platform.

How is the economy faring?

With the UK having administered over 50 million vaccine doses across 34 million people, we have seen over half the country protected against the coronavirus that has wreaked havoc over the past year.

The success of that vaccination drive does form the basis of an increasingly optimistic outlook from central bankers and economists alike. Importantly, the first reopening step taken on 12 April appears to have little material effect on the level of Covid-19 cases, while daily deaths have moved within touching distance of zero.

While the next step of the reopening could bring fresh strains of Covid-19 into the country if non-essential international travel resume as expected, we are clearly seeing signs that these vaccines are efficient at avoiding hospitalisations and deaths of variants.

Notably, professor Neil Ferguson has stated that while restrictions could be tightened somewhat in the case that fresh strains propagate in the UK, we are unlikely to see another lockdown thanks to the vaccination efforts.

Looking at the latest purchasing managers' index (PMI) release, the UK economy is clearly in the midst of a historic rebound. The recent loosening of restrictions have helped release some of that built up demand, with April seeing the fastest private sector growth since 2013.

The surge across both services and manufacturing has helped drive the composite PMI sharply higher, raising expectations that growth will follow suit in quarter two (Q2).

Utilising the National Institute of Economic and Social Research (NIESR) gross domestic product (GDP) forecast, we can see how the UK output is expected to enjoy a gradual resurgence over the course of Q2, driven primarily by services.

The NIESR expect to see a 4.8% surge in the services sector over the Q2, which is important given that it accounts for 80% of the 80% of the UK economy.

Economic forecasts key on Thursday

One of the more important parts of this forthcoming meeting is the release of fresh economic forecasts from the Monetary Policy Committee (MPC). The successful reopening process and vaccination drive should help bolster expectations of future growth from the group.

On the unemployment front, we are likely to see some job losses when the furlough scheme ends in September. However, it is likely that the peak unemployment rate could be materially lower than previous BoE forecasts.

The other important forecast to watch comes on the inflation front, with consumer price index (CPI) previously projected to settle around 2.1% next year. Of course, the forecast level of inflation will provide some clues as to whether the BoE sees it as something that will need to be addressed in time. The table below highlights the previous projections provided back in February.

What could the MPC do this time around?

We are unlikely to see any shift to the interest rate stance from the MPC at this coming meeting, with markets pricing in just a 0.8% chance that rates will rise on Thursday. Importantly, markets also see just a 5% chance that we will see a rate move at all in 2021.

Perhaps the more interesting area to watch is around the asset purchase scheme, with some looking for the BoE to signal an impending taper of those monthly purchases.

With the banks current rate of gilt purchases meaning that the £875 billion target would be reached prior to the end of the year, there is a chance the bank will trim the rate in the coming months to spread the scheme out across the entire year.

In either case, the total amount of purchases will likely remain the same, with any changes affecting how they are spread across the remainder of 2021.

Where now for the pound?

GBP/USD has been consolidating over the past two months, following a decline out of a reliable five-month uptrend that brought the highest value since April 2018. Despite this period of uncertainty, there is a good chance we see the pound come back into strength before long.

The consolidation looks like a complex inverse head and shoulders formation, with a break up through the $1.4005 handle bringing a bullish confirmation signal. Until then, it is a case of awaiting the breakout from this $1.367-$1.4005 range that has dominated the past two months.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Bank of England meeting

An in-depth look at the effects of the BoE’s interest rate announcement ahead of the next MPC meeting on 1 August 2019.

  • What was decided at the last BoE meeting?
  • How does the MPC influence inflation?
  • How might the pound be affected by the next meeting?

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.


Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.