High inflation to force Bank Of England's rate hike hand

Summary

The U.K.'s April CPI data surprised to the upside, with headline inflation and energy prices receding less than expected. Perhaps even more importantly, for now underlying price pressures still appear to be intensifying as both core inflation and services inflation quickened. In our view, elevated wage growth should keep underlying inflation trends elevated in the near term. With U.K. inflation dynamics remaining firmer than expected, we now anticipate the Bank of England (BoE) will deliver more monetary tightening than previously. Specifically, we expect the central bank to raise rates 25 bps at both its June and August meetings, which would see the policy rate peak at 5.00%. We also expect ongoing price pressures to discourage the BoE from easing monetary policy prematurely, and now forecast the Bank of England to begin lowering interest rates in Q2-2024, one quarter later than our previous forecast.

Download The Full International Commentary