Ahead of the Bank of England and European Central Bank meetings on Thursday, PIMCO’s Peder Beck‑Friis, Economist, and Konstantin Veit, Portfolio Manager, have shared their thoughts on what to expect.
On Bank of England, Peder Beck-Friis, Economist at PIMCO, said:
“The Bank of England (BoE) meets on Thursday with updated forecasts and a press conference. Governor Bailey has recently pushed back against near-term hikes, saying it’s “too early to form strong judgements”, so the MPC is likely to be on hold.
“The outlook thereafter is highly uncertain, but in our base case we expect a prolonged pause rather than hikes. The BoE has a history of looking through temporary inflation spikes – as in 2010-12 and 2017 – and with policy already restrictive, the BoE can likely afford to stay on hold. If the energy shock fades, rate cuts may resume later this year or next – but if energy prices rise from here, risk-management hikes are also possible.
“In terms of the macro backdrop, it’s very different from the 2022 energy shock. Unlike then, the labour market is much weaker, which should limit second-round inflationary pressures. Today’s fiscal response, if any, is likely to be targeted and much smaller given higher borrowing costs and constrained fiscal space.
“We like UK duration as part of a diversified set of global duration trades.”
PIMCO European Central Bank Preview: A Vigilant Hold
Konstantin Veit, Portfolio Manager, at PIMCO said:
“We expect the ECB to keep rates on hold at its April meeting, with the Governing Council maintaining a stance of vigilance amid exceptionally high uncertainty. With risks to both growth and inflation elevated, policymakers are likely to place a high value on waiting for the next round of staff projections in June before making any policy adjustments.
“While recent energy price increases have pushed headline inflation higher, underlying inflation pressures remain broadly consistent with the ECB’s medium‑term target, and wage growth is showing early signs of moderation.
“However, compared with the pre‑2022 period, the bar for the ECB to fully look through a phase of above‑target inflation appears higher, reflecting elevated initial conditions and a more cautious, data‑dependent approach that places less weight on macroeconomic model output alone.
“At this stage, we continue to expect vigilance rather than action. If the ECB were to respond to inflation risks, we believe any move would be measured rather than aggressive, with more than two rate hikes unlikely. Such an adjustment would be aimed primarily at managing inflation expectations rather than reacting mechanically to short‑term volatility, especially as growth momentum continues to soften.”
