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VIEW: HSBC Mark Terminal Rate Call Higher


HSBC Note that “the UK's April inflation print was a shocker, with core inflation unexpectedly rising to its highest since March 1992. Momentum in core inflation remains uncomfortably strong and, while the labour market appears to be cooling, this is yet to feed into slower pay growth”

  • “Given a data-dependent Bank of England, we now expect two more 25bp rate rises (in August and September) on top of the one we already expected in June. This would take Bank Rate to 5.25% in September, though it is still lower than the peak priced in by the market after it had digested April's inflation data (over 100bp of tightening by November).”
  • “Even if the UK policy rate reaches 5.25% in September, under our inflation expectations, the real-terms policy rate might still not be that restrictive. The risk of a wage-price spiral is very much alive. In turn, we still think the risks are tilted towards rates needing to go even higher this year.”
  • “That said, despite the April inflation surprise, it is still only one data point and there are reasons for caution. Two MPC members want to keep policy on hold and the Committee seemed relaxed about the market pricing in cuts next year. Monetary policy operates with 'long and variable' lags and the income squeeze remains intense. A risk of overtightening remains. The higher rates go, the bigger the risk of cuts next year.”
MNI London Bureau | +44 0203-865-3809 |

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