MNI China Daily Summary: Friday, April 26

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MNI BRIEF: Poilievre Calls QE 'Scam' And Would Limit BOC Remit

MNI: Growth Drag From Net Zero Carbon Goal Can Be Offset-OECD

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VIEW CHANGE: Deutsche Bank looks for first cut in June rather than May

BOE
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  • Deutsche Bank has pushed back its expectation of the first BOE cut from June to May, but continues to look for 75bp of cuts to 4.50% by year-end (in June, September and December). It now expects four cuts instead of six in 2025 (Feb, May, Aug, Nov) to 3.50%. It continues to see the terminal rate at 3.00% but pushes two of the cuts into H1-26.
  • It notes three main drivers to this call change: "Downside news to wage growth has unwound... Inflationary pressures have cooled, but services CPI now sitting above MPC projections... Growth risks have shifted firmly to the upside."
  • It notes that even with this change: "Risks are skewed to a slower start and higher terminal rate, but asymmetric risks will likely build in a higher for longer world."
  • "Waiting until June comes with its own risks, particularly with March and April wage and inflation data likely to be erratic on the back of indexlinked and administered price/wage rises. This could further delay the start of the first rate cut – perhaps to summer (August)." It notes that the key will be the interpretation against the forecasts in the May MPR.
  • "We see upside risks to our terminal rate view given shifting growth and inflation dynamics in the US and more globally. A resurgence in UK inflation around the turn of the year – similar to what the US is seeing now – would arrest any easing cycle, leaving Bank Rate higher for longer. But upside risks to our terminal rate view need not impact our view of where the UK neutral rate is (2.75% - 3.25%). A higher for longer world raises its own risks, reigniting concerns of a hard landing (both domestically and abroad)."
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  • Deutsche Bank has pushed back its expectation of the first BOE cut from June to May, but continues to look for 75bp of cuts to 4.50% by year-end (in June, September and December). It now expects four cuts instead of six in 2025 (Feb, May, Aug, Nov) to 3.50%. It continues to see the terminal rate at 3.00% but pushes two of the cuts into H1-26.
  • It notes three main drivers to this call change: "Downside news to wage growth has unwound... Inflationary pressures have cooled, but services CPI now sitting above MPC projections... Growth risks have shifted firmly to the upside."
  • It notes that even with this change: "Risks are skewed to a slower start and higher terminal rate, but asymmetric risks will likely build in a higher for longer world."
  • "Waiting until June comes with its own risks, particularly with March and April wage and inflation data likely to be erratic on the back of indexlinked and administered price/wage rises. This could further delay the start of the first rate cut – perhaps to summer (August)." It notes that the key will be the interpretation against the forecasts in the May MPR.
  • "We see upside risks to our terminal rate view given shifting growth and inflation dynamics in the US and more globally. A resurgence in UK inflation around the turn of the year – similar to what the US is seeing now – would arrest any easing cycle, leaving Bank Rate higher for longer. But upside risks to our terminal rate view need not impact our view of where the UK neutral rate is (2.75% - 3.25%). A higher for longer world raises its own risks, reigniting concerns of a hard landing (both domestically and abroad)."