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VIEW CHANGE: Goldman Sachs pulls forward first BoE cut to May on Soft CPI

BOE
  • Goldman Sachs pulls forward its first BoE rate cut expectations to May 2024 from June 2024 given the CPI data has "surprised the BoE's projections meaningfully to the downside."
  • GS continue to expect a 25bp cut per meeting thereafter to now reach a terminal 3.00% by May 2025 (instead of June 2025). Note that GS had changed their expectation of the first cut to June from August last week after the MPC meeting.
  • “In seasonally adjusted MoM terms, we estimate that core inflation cooled sharply to +0.04% (from +0.21% in October)". Core goods inflation declined to -0.41% (from +0.05% in October), Services inflation remained unchanged on rounding at +0.32%.
  • "Today’s print showed a larger-than-expected slowing in core inflation. While this slowing was driven entirely by core goods, our volatility-weighted measure of sequential services inflation also moderated meaningfully, pointing to further cooling in underlying inflationary pressures."
  • Both Services and Core goods are below the average pace observed in Q2 and Q3, as well as food, alcohol and tobacco and headline inflation despite the estimated pick up to +0.23% M/M and -0.03% M/M.
  • "Within services inflation, we estimate that the largest decline in the seasonally adjusted MoM rate came from cultural services (-0.10pp), telephone services (-0.03pp), and transport equipment and maintenance (-0.03pp). These were offset by upward contributions from accommodation (+0.10pp), restaurants (+0.04pp),and rents (+0.01pp)."
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