Interest rate preview: which way will policymakers vote?

Higher oil prices will this week reinforce the caution of the Bank of England and US Federal Reserve at a time when markets are mapping the path of lower interest rates.

The US central bank is poised to resist the calls of President Donald Trump for lower borrowing costs by keeping the headline rate in a range of 4.25% to 4.5% for the fourth meeting in a row.

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Wall Street economists expect the dot-plot summary of economic projections, which is released at the same time, will show one rather than two cuts this year before 0.75% of cuts in 2026.

Ahead of Wednesday evening’s announcement, Bank of America said: “The Fed's main message at the June meeting will be that it remains comfortably in wait-and-see mode.

“For 2025, we think growth will likely be marked down and inflation will likely be revised up. Given elevated uncertainty, we don't expect forecast changes for 2026 and beyond.”

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The bank said that questioning for Federal Reserve chair Jerome Powell at his post-meeting press conference will focus on softening labour data, the country’s recent benign inflation prints and the risks of persistent tariff-driven inflation.

In addition, recent events in the Middle East after a surge in the price of Brent crude to Friday’s level of $78 a barrel have added significant uncertainty to economic projections.

Deutsche Bank added: “Future price increases from tariffs loom in the background even if their initial impact has taken a bit longer to show up than expected.

“So, it's a meeting where we could learn very little, partly as the Fed really doesn't know which way the world is evolving and feeling that they have flexibility at current policy settings.”

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The Bank of England announces its policy decision at noon on Thursday, with economists expecting a 7-2 vote in favour of no change in the base rate at 4.25%.

Markets are pricing two rate cuts this year, with the most weight on August and November as members maintain a quarterly stance to loosening monetary policy.

This “gradual and careful approach” reflects the need to strike a balance between sticky services inflation and the possibility of a slowdown in growth caused by US tariffs and geopolitics.

Bank of America expects this week’s meeting minutes will imply a low likelihood of a summer pause in quarterly cuts by emphasising that progress in underlying inflation is continuing - barring an upside surprise in tomorrow’s CPI reading for May.

It added: “The UK/US trade deal is likely to cap severe growth downside risks, but growth is likely to be lower than pre-Liberation Day projections assuming 10% tariffs stay in place.”

The bank also forecasts a cut in September, taking rates to 3.5% by the year end.

Despite heightened levels of uncertainty for its GDP and rate projections, UBS thinks the Bank will cut rates three more times in February, May and August of 2026 to a terminal rate of 3%.

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Meanwhile, counterparts at ING wonder whether an increasingly bad run of jobs data means policymakers need to step up the pace of rate cuts.

The bank said: “The hawks at the Bank of England would point to wage growth, which, despite the material cooling in hiring, has remained stubbornly high.

“But that is starting to change. Private sector pay growth has fallen from 6% to almost 5% in the space of a couple of months. That’s partly a base effect story, but it also reflects a genuine cooling in pay pressures, too.”

ING expects rate cuts in August and November and two more moves in 2026, taking the terminal rate to 3.25%.