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VIEW CHANGE: Goldman Sachs no longer expect June cut

BOE
  • "Given firmer incoming price and wage data, we no longer expect a June Bank Rate cut."
  • "While the April CPI report is usually noisy given annual resets in services prices, the upside surprise was broad-based across components, including underlying measures of services inflation that the MPC has focused on."
  • "We estimate that sequential services inflation was 0.56%mom in April—up from March—and underlying services inflation metrics also rose on a seasonally adjusted month-on-month basis."
  • GS also point to firm wage growth, an improving growth outlook and recent BOE commentary pointing to a a summer cut if data was in line with expectations (and it has been firmer).
  • "The pace of cuts depends on progress with the measures of inflation persistence... But we also see compelling arguments for swifter rate normalisation... Taken together, we therefore maintain our forecast for quarterly steps until Bank Rate reaches 3%." But reached in Q3-26 rather than Q2-26 previously.
  • GS assign a 50% probability to their base case but see a 25% probability of stickier services leading to "semi-annual steps", "15% probability of back-to-back cuts (if past effects of high energy prices fade more quickly in H2) and a 10% chance that rapid labour market deterioration requires active monetary easing."
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