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Goldman: Fifty, But Probably Not Forcefully

GBP

Goldman Sachs note that their “economists expect the BoE to hike by 50bp this week, breaking from the more gradual and balanced approach the BoE has taken so far this year. The MPC said at its last meeting that it would act more “forcefully” if inflation pressures looked more persistent, and since then the market has started to price some “course correction” over the next few meetings. So the key question for the meeting next week in our view is how policymakers will balance the strong spot wage and inflation data against the gathering storm clouds over the Euro area economy. We have argued that the MPC’s more balanced approach to getting inflation lower would lead to Sterling underperformance, and we do not expect a wholesale shift away from this strategy at this meeting. That said, a 50bp hike would mark an important change in the BoE’s approach, and the Fed’s move back towards a slightly more balanced strategy also makes the BoE less of an outlier to some extent. Taken together, and in light of the more negative outlook for the Euro, we see less of a case for Sterling underperformance, but still see the risks tilted somewhat to the downside, especially if BoE communication is once again on the less forceful side.”

MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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