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View change: JPM: 75bp in September with 4.00% Bank Rate by February

BOE
  • JP Morgan updated its UK forecasts yesterday following the energy price announcement and now looks for a 75bp in September (50bp previously), continues to look for 50bp in November and now also looks for 50bp hikes in both December and February to bring Bank Rate to 4.00%.
  • JPM lists eight reasons for a 75bp hike next week rather than 50bp including that other central banks have hiked 75bp (including ECB), "UK wage and price data have surprised to the upside", the "MPC will be aware of the medium term implications of a large scale fiscal easing" and also argue that it is hard to state that you are acting "forcefully" if the Bank is underdelivering vs market pricing.
  • "We have pencilled in a 1-3-5 vote with Tenreyro dissenting for 25bps, Cunliffe, Dhingra and Haskel on 50bps and Pill, Bailey, Mann, Broadbent and Ramsden on 75bps."
  • "While not our base case, we see risks of the BoE delaying the start of sales next week. If so, they would be under pressure to show that this is not affecting the overall stance of monetary policy, and so such a move might provide an extra justification for a 75bp rate hike."
  • On inflation, JPM now see "CPI averaging 10% in 4Q and then 9% in 1Q23, lower than the near 13% peak in our prior forecast but still very high."
  • Due to higher real incomes "we now expect a smaller and slower rise in the unemployment rate next year and have lifted our inflation forecast in 2024 by 0.4%-pts... Using past elasticities published in the past by the Bank, this might ordinarily require an extra 75bps of policy tightening."

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