VIEW: Goldman Sachs Roll Forward BoE Rate Hike Call

Goldman Sachs note that "the amount of slack in the UK economy and how quickly it unwinds is of critical importance for the inflation outlook and the timing of the BoE's monetary policy exit."

• "While our analysis confirms that significant spare capacity remains, our estimates point to somewhat less slack than we previously anticipated, reflecting upside surprises to the level of real GDP and the speed of labour market progress. Consequently, we expect core inflation to reach the BoE's 2% target in the third quarter of 2023."
• "Given an earlier return to full employment and 2% inflation, we have brought forward our expectation for the BoE to start tightening policy. We continue to expect the BoE to announce in August that they intend to switch up the sequencing of exit, with balance sheet unwind coming ahead of liftoff. But we now expect balance sheet unwind to begin in Q323, six months earlier than previously projected, and the first Bank Rate hike in Q424, a year earlier than before. Our updated projection for liftoff remains significantly later than current market pricing, as we think the market puts insufficient weight on the scale of slack in the UK economy, and the implication of balance sheet runoff for the timing of the first hike."