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VIEW CHANGE: BNP: 50bp in August with 5.75% terminal rate

BOE
  • “We do not think 50bp is necessarily the default pace from here, with forward guidance being left vague and recent upside data surprises cited as justification for the larger-than-anticipated move at this “particular” meeting.”
  • “However, actions speak louder than words, and the MPC’s decision today suggests more openness for ‘front-loading’ than we had envisaged. What’s more, we don’t think the data will improve sufficiently to allow a downshift already in August.”
  • “We add 25bp to our terminal rate forecast and now expect 5.75% by September, implying one more 50bp move and one 25bp move. Should the data improve enough to allow a downshift in August, we would expect the MPC to just take longer to reach this level.”
  • “A simple mark-to-market of its last projections suggests that the MPC would now need to deliver at least a terminal rate of 5.25% to keep a back of the envelope estimate of real rates unchanged. Factoring in our view that there is also likely more inflation persistence, then we think even more tightening is necessary. Hence, the MPC needs to deliver more just to get the same ‘bang for buck’.”
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