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View Change: JP Morgan: Looking for 50bp in August

BOE
  • “The BoE’s guidance that it will be “alert to...more persistent inflationary pressures” and will “if necessary act forcefully” is nevertheless hawkish and buys the MPC optionality to deliver 50bp hikes in August and beyond.”
  • “Despite the above elements of caution from the BoE, there are increasing signs that it is finally opening up to the possibility of needing to raise rates more than just once or twice more to control inflation (a view that it implicitly expressed as recently as May).”
  • “The first part of this language is more vague about the next step for policy, and provides the MPC with more optionality… this more open element of the MPC’s latest guidance should not be confused with a lack of conviction about rates needing to rise.”
  • “The second part of the guidance described above has a clear hawkish angle to it, and it is bolder than the MPC has gone before. Unlike at the previous meeting, when the MPC spoke of “risks of both sides” of its judgement, this time it focussed squarely on the upside risks to inflation and used much more assertive language.”
  • “We are putting in a 50bp hike for August in anticipation the BoE will not get better news on inflation persistence any time soon.”
  • “For now we have not made changes to the forecast beyond then, implying that rates will finish the year at 2.25% (2.0% previously). But we will revisit this call and our broader forecast again after seeing next week’s CPI report for May. A surprise in core inflation - as seen in several other countries - or a further rotation of pressures towards services - would likely push the BoE to break further away from its gradualist approach seen up until now.”
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