Economists at Goldman Sachs, in their latest note, maintained the view of a 50 bps rate hike by the Bank of England (BOE) at its September policy decision while revising up their forecasts for a 50 bps hike in the coming months.
"In the runup to the September meeting, the MPC is likely to focus on the extent to which strong wage growth is becoming embedded, and on assessing the reaction of inflation expectations to high spot inflation. The UK labor market remains remarkably strong, with many indicators just as tight as in the US Households' inflation expectations have firmed sharply, and we see risks as skewed towards more persistent inflation expectations."
"While not a done deal, we continue to think that a 50bp hike at the September MPC meeting is more likely than a step-up to 75bp. That said, given strong and persistent wage growth, elevated inflation expectations and the likelihood of the new Prime Minister announcing further fiscal support, there is a case for the BoE to take monetary policy rapidly into contractionary territory.”
"On the heels of the firmer inflation outlook, we revise up our Bank Rate forecast to include 50bp hikes at both the November and December MPC meetings (from 25bp previously), taking Bank Rate to 3.25% by year-end. After this, we look for a step down to a 25bp hike in February, given we expect the data to show the UK economy to be in the middle of a technical recession at this point. This puts our terminal Bank Rate at 3.50%, up from 2.75% previously, but below market pricing."
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