Nomura expects the Bank of England to keep Bank Rate at 3.75% at next week\u2019s Monetary Policy Committee meeting. It expects an 8-1 vote to hold, with Huw Pill voting for a rise.<\/p>\n
The rate decision and new forecasts are due next Thursday at midday. Nomura expects fuller guidance alongside forecasts that show higher inflation and slightly weaker growth.<\/p>\n
Nomura expects no change in policy rates through the end of 2027. It also flags uneven risks, with the chance of rises in the near term and cuts later on.<\/p>\n
Financial markets are pricing in more than two rate rises before year-end. However, markets imply only a 2\u20133bp risk of a rise on 30 April.<\/p>\n
The article notes it was produced with help from an Artificial Intelligence tool and reviewed by an editor.<\/p>\n
With the Bank of England’s next meeting approaching, we expect them to hold the policy rate steady at its current 4.25%. The market is once again pricing in further tightening that we believe is unlikely to materialize in the immediate future. This creates a disconnect between market pricing and probable central bank action.<\/p>\n
We saw a very similar setup back in the spring of 2025, when the Bank Rate was 3.75% but financial markets were pricing in multiple hikes before the end of the year. The Monetary Policy Committee held firm then, signaling a clear reluctance to tighten policy into a weak economy. That period showed us that the Bank is comfortable diverging from aggressive market expectations.<\/p>\n
Current data supports a continued pause, with the latest ONS figures showing headline inflation falling to 2.8% while core inflation remains stubbornly above target. At the same time, Q1 GDP growth was a sluggish 0.2%, reinforcing the view that the economy cannot easily withstand much higher borrowing costs. This mix of sticky inflation and stagnant growth puts the MPC in a difficult position.<\/p>\n
This suggests a strategy of selling near-term volatility in the rates market may be prudent. With the Bank likely to remain on hold, options on short-term SONIA futures appear overpriced. A position that benefits from policy inaction, such as a short straddle, could be effective over the coming weeks.<\/p>\n
However, the risks are not symmetrical, tilting towards a hawkish surprise in the near term and the possibility of cuts later in the year. This asymmetry makes owning cheap, out-of-the-money call options on rate futures an interesting hedge. It provides protection against the Bank taking out insurance against persistent second-round inflation effects.<\/p>\n
Should the Bank feel compelled to hike once more, we believe it would be a policy move that would likely need to be reversed later. This potential for a policy pivot later in 2026 or early 2027 supports positions that benefit from higher long-term volatility. This can be expressed through calendar spreads in the options market.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Nomura expects Bank Rate held at 3.75%, 8-1 vote, higher inflation forecasts, no changes through 2027.<\/p>\n","protected":false},"author":87,"featured_media":0,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[33],"tags":[],"class_list":["post-45683","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t