Goldman: Change In BoE Pricing, But No Change In Disinflation View

Goldman Sachs write “as we head into the February MPC, the UK is one of the G10 economies where the difference between our expectations for central bank easing in 2024 and market pricing is the largest.”

• “BoE pricing has seen cut expectations reduce notably in recent weeks, as the latest inflation print surprised to the upside and PMIs look relatively good compared to the Euro area.”
• “BoE communication has remained hawkish and fiscal policy may loosen again in the upcoming spring statement.”
• “However, our economists’ analysis points to a strong underlying disinflationary trend, underpinned by clear progress on labour market loosening.”
• “As a result, they expect the BoE to cut six times in 2024 starting in May, and we continue to expect the UK front-end pricing to converge towards (and eventually exceed) the U.S.”
• “That being said, risks remain two-sided, in particular with the risk of a hawkish communication package by the MPC next week. But the prospect of further downward revisions to inflation by May suggest any near-term rise in yields in the UK front-end should be temporary.”