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VIEW CHANGE: Citi looks for 5.75% terminal with 50bp in August "plausible"

BOE
  • “From a fundamental perspective, we think the decision remains questionable – with an acceleration only really logical at this point in the cycle if one has concluded the Philips Curve has de-anchored.
  • “We think the MPC are continuing to benchmark themselves against 1) spot data and 2) the market reaction that engenders – earning the right to maintain a forward-looking view. From our perspective, a further 50bps in August is plausible – particularly if upside risks around services inflation crystallize. However, our base case is for 25bps.”
  • “In both cases (50bps in August, or three 25bps), terminal at 5.75% in the second half of the year feels like the likely landing zone.”
  • The “decision remains inherently backward looking. In our view, it is also misconceived. We continue to expect cuts from May, as second round inflationary effects ease, the labour market softens and policy pass through accelerates. For now, we continue to expect Bank Rate in Q4-24 at 3.5%.”
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