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Investing.com -- Deutsche Bank (ETR:DBKGn) expects the Bank of England’s Monetary Policy Committee (MPC) to keep its Bank Rate unchanged at 4.25% on June 19.
The financial institution anticipates a 7-2 vote in favor of maintaining current rates, with external members Swati Dhingra and Alan Taylor likely voting for a quarter-point cut.
The bank foresees increased MPC concerns about labor market conditions, with domestic risks replacing global concerns that dominated May discussions.
Recent data shows the U.K. labor market is loosening faster than expected, with unemployment reaching 4.6% in the three months to April—already meeting the Bank’s Q2-25 projection. HMRC payrolls have fallen by 276,000 over the past seven months, including a 109,000 drop in May.
Despite these labor market concerns, Deutsche Bank does not expect changes to the MPC’s forward guidance in June.
The committee will likely maintain its position that a "gradual and careful" approach to reducing policy restraint remains warranted, while continuing to monitor inflation persistence risks and maintaining that policy is not on a preset path.
Deutsche Bank maintains its forecast for three quarter-point rate cuts in 2025 (August, November, December) and one final cut in February 2026, bringing the Bank Rate to 3.25%.
The bank notes that inflation remains broadly on track with the Bank of England’s projections, with recent market conditioning assumptions likely to trim inflation projections by approximately 15 basis points in year one and 13 basis points in years two and three.
While the May HMRC payrolls report showing significant job losses "will have sent some shockwaves across the MPC," Deutsche Bank believes most committee members will not "push the panic button" yet, as alternative labor market indicators paint a more mixed picture.
The bank sees risks "skewed in a more dovish direction," particularly if labor market weakness persists and inflation expectations recede from current elevated levels.