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JP Morgan adds 75bp more BOE hikes to base case

BOE
  • JP Morgan has updated its BOE view and now looks for 100bp more in terms of hikes this year (25bp hikes in May, June, August and November). This is up from two 25bp hikes in May and August.
  • It also now looks for an extra hike in the middle of next year (Feb, May and Aug) to take rates to 2.50% by next summer.
  • JP Morgan notes that "this forecast still embodies a more moderate pace of tightening from the BoE as growth slows during the course of this year, but we no longer anticipate this to lead to an extended pause after August."
  • "We very tentatively assume an effective equilibrium rate of around 1.5%, and so now expect the BoE to take rates into a restrictive setting with the intention of tempering building labor market pressures."
  • JP Morgan cites 3 reasons: 1) "Momentum in growth and the labor market has been much stronger than expected at the start of this year." 2) "A purchasing power squeeze that results in weak but positive growth probably isn’t enough for the BoE." 3) "The external backdrop is shifting in a way that argues for higher rates."
  • JP Morgan also notes that "we downplay the BoE’s dovish rhetoric as a guide to the rate path, and instead focus on the consumer and labor market data." Note that Broadbent's speech earlier this week suggested market participants do just that - and that markets overemphasise the importance of speakers relative to the economic data.
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