Goldman Sachs: Policy Sets A Concerning Course

Goldman Sachs note that “the BoE did not set a more aggressive tone, which became even more out of step with market dynamics following the large fiscal easing package.”

• “With broad unfunded spending on the fiscal side unmatched by monetary policy to offset the inflationary impulse, the currency is likely to weaken further. Our economists do expect a larger increase in the policy rate at the next meeting, as it’s possible that the Bank’s refreshed projections and assessment of fiscal policy will allow them to strike a more forceful tone on inflation, but significant uncertainty remains.”
• “Considering the size and breadth of the fiscal package, even a 75bp hike seems likely to leave the BoE behind the curve on taming inflation and well below market pricing which is now close to 100bp.”
• “We are revising our GBP forecasts weaker vs EUR to GBP0.92, GBP0.90, GBP0.88 in 3-, 6-, and 12- months (GBP0.85, GBP0.83, and GBP0.84 previously). We are also downgrading our GBP/USD forecasts for 3-, 6-, and 12-months ahead to $1.05, $1.08, and $1.19 (vs $1.14, $1.17, and $1.25 previously).”