Morgan Stanley analysts said they now expect a 25 basis point (bps) rate hike from the Bank of England in May, and see "clear risks of a June move too". Previously, the bank had anticipated no change in UK rates next month. "With sequential pressures in inflation this strong, it is hard to see how the tightening cycle can be stopped. Hence, we now expect a 25bp hike from the BoE in May," Morgan Stanley UK economist Bruna Skarica said. Bank of America, BNP Paribas and RBC Capital Markets said they too now expected a 25-bps rate hike from the BoE in May compared to a previous call for no change. Deutsche Bank said it also expects two more rate hikes from the BoE, taking the terminal rate to 4.75% in June.
Bank of America said it forecast the terminal rate at 4.5%. Data showing Britain's inflation at an annual rate of 10.1% in March, well above the 9.8% forecasts by economists, followed data on Tuesday showing British wages rose fasted than anticipated last month. "Importantly, we now see risks to our terminal rate forecast skewed to the upside," said Deutsche Bank senior economist Sanjay Raja.
Investors now fully price in a quarter-point interest rate
rise to 4.25% on May 11 after the BoE's next meeting - up from
an 80% chance on Tuesday - and expect rates to peak at 5% by
September, according to futures markets.
The Bank of England started hiking interest rates in late
2021 and was one of the first major economies to kick off the
tightening cycle.
(Reporting by Sam Indyk and Dhara Ranasinghe; editing by
Jonathan Oatis)
