Nomura expects the Bank of England to keep Bank Rate at 3.75% at next week’s Monetary Policy Committee meeting. It expects an 8-1 vote to hold, with Huw Pill voting for a rise.
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.
Nomura View On The Upcoming Decision
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.
Financial markets are pricing in more than two rate rises before year-end. However, markets imply only a 2–3bp risk of a rise on 30 April.
The article notes it was produced with help from an Artificial Intelligence tool and reviewed by an editor.
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.
Trading Implications For Rates Volatility
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.
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.
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.
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.
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.
