Deutsche Bank expects the Bank of England to keep Bank Rate at 3.75% at its June meeting, extending the hold to a fourth consecutive decision. The bank sees a 7–2 vote on the Monetary Policy Committee, with Huw Pill and Megan Greene dissenting in favour of a rise, while the majority judges the current stance appropriate as rate expectations have firmed since April.
The forecast still assumes no change in Bank Rate this year, yet the risk of tighter policy is rising if the energy shock persists and feeds through into indirect and second-round inflation effects. Under this path, Deutsche Bank expects Bank Rate to remain at 3.75% until spring next year, after which the MPC could restart an easing cycle. It sees the eventual endpoint at 3.25%, described as its estimate of nominal neutral.
Monetary Policy Outlook And Inflation Dynamics
We expect the Bank of England to keep the Bank Rate unchanged at 4.50% at its meeting later this month. The vote will likely be a 7-2 split, showing that a couple of members still see a need for tighter policy to fight inflation. This reinforces our view that the Bank is in no rush to start cutting rates.
This cautious approach is being driven by stubborn data, with services inflation still running at a high 4.5% in the latest report. While headline inflation has fallen to 2.8%, this core stickiness is what the committee is focused on. Until there is clear evidence of a broader cooling in price pressures, rate cuts will remain off the table.
Market Implications And Trading Opportunities
For derivative traders, this means the market may be too optimistic about the timing of future cuts. We see an opportunity in strategies that profit if UK rates stay higher for longer than currently priced in. Selling Sterling Overnight Index Average (SONIA) futures for delivery in late 2026 or early 2027 could be an effective trade.
Wage growth is also a key concern, which, despite easing, is still holding around 4.0%, a level inconsistent with the Bank’s 2% inflation target. We believe the first rate cut will not happen until the spring of 2027. This suggests any dips in short-term interest rate swaps are a chance to position for a prolonged hold.
