Goldman Sachs has lowered its estimate of the peak U.K. interest rate, even as it forecasts a quarter-point increase by the Bank of England on Thursday.
Economists James Moberly and Sven Jari Stehn say the U.K. central bank will take rates to 5.5%, from 5.25%, but no longer see one additional rate hike in November.
They note that since the August meeting, the unemployment rate has risen further, and communication from core members of the Bank of England has been dovish, including a comment from Bank of England governor Andrew Bailey saying interest rates are much nearer now to the top of the cycle.
However, not every new development was dovish, as the latest private sector pay numbers came in above the Bank of England’s forecasts.
The Bank of England will have the latest inflation data, published Wednesday, to analyze, ahead of its decision. The Goldman team expects services inflation to be at 7.3% year-over-year, which is a 10th ahead of the Bank of England’s projection.
Looking to November, the Goldman team say the Bank of England will want to go on hold once wages and services inflation show clearer signs of cooling. The August wage growth and September services inflation numbers will be particularly important, they add.
The yield on the 2-year gilt
BX:TMBMKGB-02Y
was 4.77%, steady on the day and up 1.2 percentage points this year.
The pound
GBPUSD,
was right below $1.24, having traded above $1.27 as recently as late August.
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