BofA, Credit Suisse Bring Forward Forecasts for U.K. Rate Hike

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Bank of America Merrill Lynch and Credit Suisse brought forward forecasts for the first interest rate increase in the U.K. since the pandemic struck.

The banks expect an increase from the second and third quarters of next year respectively after previously ruling out a move before 2023. The estimates follow an unexpected surge in inflation over the Bank of England’s 2% target for the first time in almost two years and quickening economic growth that is creating more jobs.

The forecasts reflect growing optimism that the U.K. will bounce back quickly from the worst recession in three centuries. BOE policymakers eased the pace of stimulus last month and could give hints after a meeting next week about how soon they will have to tighten policy.

BofA, Credit Suisse Bring Forward Forecasts for U.K. Rate Hike

The BOE said it expects inflation to reach 2.5% this year before easing back to its target, though Governor Andrew Bailey has said he’s prepared to tighten policy provided evidence shows higher prices are being sustained.

On Thursday, HSBC Bank Plc, which is Britain’s biggest bank., said the outlook “is consistent with rising risks of a U.K. rate hike next year,” senior economist Chris Hare wrote in a report. Credit Suisse and BofA followed on Friday with firm forecasts for an increase in 2022.

“The BOE’s judgment of limited near-term underlying inflation pressures rests on the forecast that unemployment will rise this year as the furlough scheme ends in September 2021,” Credit Suisse economist Sonali Punhani wrote Friday. “Our view is more hawkish than that and we think the conditions for tightening policy can be met sooner.”

  • Credit Suisse sees GDP rising by 7.5%, up from 6.5%, in 2021 and inflation rising to 1.8%, up from 1.7%
  • Bank of America expects the BOE to start quantitative tightening soon after the first rate hike in early summer 2022 or spring 2023

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