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GS updates its UK inflation forecast but keeps its BOE path unchanged

BOE
  • Goldman Sachs has updated its inflation forecasts given developments in energy markets due to the events in Ukraine. IT now expects: "headline and core inflation to pick up to 8.5% and 5.6% in April, respectively. Given these new assumptions for domestic energy bills, the peak in headline inflation shifts from April to October, rising to 9.5% in October and remaining above 7% through 2023Q1." (However, GS notes that it assumes the £200 discount on energy bills not to be reflected in CPI data and there are downside risks if it is).
  • GS expect a unanimous vote for a 25bp hike from the BOE in March and to state there are “considerable risks to the outlook” with emphasis on "data dependence and flexibility". They do not expect any repeats of 50bp hikes.
  • It does not expect the "coming months" tightening language to be repeated in March.
  • GS "still see the BoE’s hiking path as broadly on track for the remainder of this year, with back-to-back hikes through August, taking Bank Rate to 1.5%. After the August meeting, we expect the BoE to slow the hiking cycle, with Bank Rate reaching 1.75% in November and 2% in 2023Q2."
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