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VIEW CHANGE: Nomura: Reverting to 25bp hikes with 5.75% terminal rate

BOE
  • “Unless we see further outsized rises in wages and core/service consumer prices (published on 11 and 19 July respectively), we think the Bank will revert to 25bp hikes from August.”
  • “We have added an extra hike to our profile and now see the Bank tightening in August, September and November for a peak of 5.75%.”
  • “We take note of one comment in the June minutes, which could indicate that today’s outsized hike might be a one-off: “a 0.5 percentage point increase in interest rates was required at this *particular* meeting” (emphasis added). It may be that we are reading too much into this, but the MPC could be trying to communicate here that this was not intended to be a series of 50bp hikes.”
  • “With rates being raised further than we had originally expected, more rate cuts would be ultimately required to return Bank Rate back to neutral as and when inflation starts to behave.”
  • “The bigger risk, however, is that in the words of Milton Friedman (and more recently Silvana Tenreyro) the Bank ends up being the ‘fool in the shower’ and hikes too much, requiring a swifter correction should recession ensue.”
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