BoE Dovish Repricing Looms as Inflation Projections Weaken Case for Rate Hike

Bank of England (BoE) policymakers are set to leave interest rates unchanged this week, according to ING's Francesco Pesole.

Pesole believes that a contained inflation projection will strengthen the case for rates to remain on hold for the rest of the year, which could lead to a dovish repricing of sterling and create downside risks for the currency.

The BoE meeting is expected to be closely watched, particularly if Catherine Mann joins Huw Pill and Megan Greene in voting for a rate hike, which would change the dynamic within the Monetary Policy Committee (MPC).

Pesole argues that even if inflation peaks below 4%, the market's expectation of 38bp of tightening by year-end will be challenged, resulting in a possible unwinding of priced-in tightening and a hit to sterling.