MNI BRIEF: Inflation Risks Now Shifted To Downside-BOE Ramsden

MNI: Goolsbee Says Stalled Inflation Means Wait Before Moving

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View Change: NatWest Markets: Look for 3.00% Bank Rate by year-end

BOE
  • “The BoE's reaction function appears to have changed. The previous approach of policy gradualism has been abandoned, with the Bank seemingly more sensitive to near-term inflation outturns and risks (as opposed to medium-term inflation forecasts).”
  • “There is no longer any meaningful 'trade-off'. . . no ifs, no buts . . . a recession is unavoidable”
  • “We perform major surgery on our Bank Rate forecast: +50bp in September to 2.25%, +50bp in November to 2.75% and +25bp to 3.0% in December (our previous ‘terminal rate’ forecast was 2.0%).”
  • “Although market pricing heading into the meeting was clearly more hawkish than our base case, this is not obviously a dovish pivot from the BoE. Today’s meeting raises our expectation of terminal policy rates to more in line with market pricing, and probably leaves the skew of risks to the upside, as long as inflation remains high.”
  • NWM still sees cuts beginning in 2023 with 25bp cuts in Q4-23, Q1-24 and Q2-24 to 2.25% (the end of the NWM forecast horizon).
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