The Bank of England is expected to see dissent on its Monetary Policy Committee (MPC) this week, with at least two members likely to vote for an interest rate hike. Analysts at JP Morgan, BNP Paribas, and Goldman Sachs have predicted that hawkish policymakers will push back against leaving rates unchanged.
Huw Pill Leads Hawkish Stance
The Bank's chief economist, Huw Pill, is expected to lead calls for more restrictive monetary policy. According to top banks, the overall vote is likely to be 7-2 in favor of holding rates steady. Pill has repeatedly warned that interest rates were cut too quickly over the past two years from a peak of 5.25% in mid-2023.
Inflation only briefly returned to the target rate of 2% in mid-2024 during the transition between the Tory and Labour governments. It then surged to a high of 3.8% months later as firms passed on costs from Rachel Reeves' £25 billion hike to employers' national insurance contributions.
Pill argued in a speech last year that the Bank should have been more cautious in cutting rates, as inflation expectations among households and businesses became anchored after Russia's full-scale invasion of Ukraine, influencing wage and price-setting behaviors.
Over 37 MPC meetings, Pill has voted to increase rates 14 times and backed reductions only twice. This contrasts sharply with MPC member Swati Dhingra, who has voted to cut rates in 17 of 29 meetings.
Iran War and Inflation Risks
Economists suggest Pill will argue that the energy price shock from the Iran war could trigger another spike in inflation. Both the OECD and IMF indicate the UK economy will suffer higher price growth than the G7 average. Pill recently stated that monetary policy could be used to contain an expected inflation spike.
Other Potential Hawks
JP Morgan and Goldman Sachs expect Pill to be joined by external member Megan Greene in voting for a hike. BNP Paribas, however, suggests Catherine Mann—who often surprises economists—would support a hike while Greene votes to hold.
Deutsche Bank research finds MPC divisions have been historically high since the pandemic. Its base scenario is that Pill is the lone hawk, with others voting to hold. Economist Sanjay Raja also raised the possibility of one member backing a 25 basis point cut due to potential non-linear shocks to the labor market and growth.
"The word of the day, we think, will be 'risk'," Raja said. "Indeed, with the UK dealing with the unfolding repercussions of the Iran conflict, 'risk' remains rife."
