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VIEW CHANGE: MS: Bar to 50bp in August very low but pencil in 2x25bp for now

  • “The minutes are mixed: medium-term price pressures are easing, but the MPC in no way leaned against fairly aggressive market pricing.”
  • “For now, spot data remain key. Given the extent of beats in recent months, it is hard to properly pin down the benchmarks against which the MPC will measure the incoming data, as May MPR forecasts are stale.”
  • “The bar to a 50bp move in August is very low. We pencil in a 5.5% terminal rate for now, as we do expect core services inflation and private sector pay growth to ease in next month's prints, with employment growth taking a leg lower in the July LFS too. But as noted, a 50bp move in August, followed by a final 25bp hike in September, is the clear risk scenario.”
  • “Given likely concerns around premature easing and some of the persistence in services inflation, we lift our end-2024 rate forecast to 4.25% (from 4.0% before), with cuts pegged to start in mid-2024. That said, we see the risks as skewed towards more aggressive moves in 2H24.”

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