Goldman: More To Do For The BoE

Goldman Sachs note that “UK activity data surprised to the upside, with June GDP growth reaching 0.5% m/m, partly setting the tone for the labour market and CPI data releases.”

• “As alternative wage growth indicators point to near-term strength, our economists expect private sector regular pay growth to remain above 7% in June, before gradually declining to around 6% by year-end.”
• “The CPI release however looks poised to be more market friendly, with base effects related to the energy spike of last year likely to feed through to lower headline inflation.”
• “In this context, our economists look for two more 25bp hikes by the BoE, and we continue to think terminal rate pricing is broadly fair.”
• “Though we eventually see scope for term premium to build in the UK, with the BoE further away from a pause in its hiking cycle than G3 peers, and more significant macro uncertainty, we expect policy rate expectations to largely drive curve behaviour in the near-term.”
• “An important risk to this view would be a surprise in the balance sheet reduction objective for the 12 months starting in October (we expect £90bn, with risks tilted to the upside), but the BoE has reiterated its intention to make a decision only at the September MPC.”