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VIEW: Goldman Adjust Terminal Rate Call Higher


Late on Tuesday Goldman Sachs adjusted their terminal Bank Rate forecast to 5.25%, which they expect will be reached in September (previously 5.00% in August).

  • They note that “while the BoE has been reluctant to hike further, we believe that persistent inflationary pressures will push the MPC towards more tightening.”
  • “Our new forecast is slightly below current market pricing, but remains above the latest available Bloomberg consensus, and we maintain our baseline for no cuts until Q224. We now expect the BoE to raise Bank Rate to a higher terminal value than the Fed - an outcome that has seemed remote but has historically been the norm.”
  • “Although market pricing attaches a significant probability to 50bp increments in June and August, we see a high hurdle for a step-up in the pace of tightening.”
  • “First, the economy is still digesting most of the tightening in the pipeline, creating an incentive to hike gradually to observe how demand is holding up.”
  • “Second, the labour market is rebalancing with vacancy rates falling, employment growth slowing, and the unemployment rate drifting up.”
  • “Third, we are sceptical the MPC would find agreement to step up the pace of tightening when other major central banks are approaching the end of their tightening cycle.”
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