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BNP: Inflation Report Keeps Up Pressure On Monetary And Fiscal Policy

UK

BNP Paribas writes that today's UK inflation report "supports our view for further tightening from the BoE. It also highlights a deepening squeeze on household real incomes, which will keep the pressure on the incoming prime minister to deliver more fiscal relief."

  • "That said, the print doesn’t seem too out of whack with the MPC’s own forecast: they expect Q3 inflation to average 9.9%, and we think inflation is likely to hover around these levels for the rest of the quarter. And there are signs that that we could see some respite from non-energy pressures in the coming months which will provide some relief and prevent the need for the MPC to deliver another oversized hike."
  • Re the gov't response to inflation eating away at real earnings: "risks are skewed towards more targeted fiscal stimulus as the political reality sets in."
  • While they acknowledge that today's inflation surprise could add pressure on the BoE to go 50bp again, BNP sticks to their expectations for 25bp hikes in Sep22, Nov22 and Dec22 to terminal 2.50%.
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BNP Paribas writes that today's UK inflation report "supports our view for further tightening from the BoE. It also highlights a deepening squeeze on household real incomes, which will keep the pressure on the incoming prime minister to deliver more fiscal relief."

  • "That said, the print doesn’t seem too out of whack with the MPC’s own forecast: they expect Q3 inflation to average 9.9%, and we think inflation is likely to hover around these levels for the rest of the quarter. And there are signs that that we could see some respite from non-energy pressures in the coming months which will provide some relief and prevent the need for the MPC to deliver another oversized hike."
  • Re the gov't response to inflation eating away at real earnings: "risks are skewed towards more targeted fiscal stimulus as the political reality sets in."
  • While they acknowledge that today's inflation surprise could add pressure on the BoE to go 50bp again, BNP sticks to their expectations for 25bp hikes in Sep22, Nov22 and Dec22 to terminal 2.50%.