(Bloomberg) -- Goldman Sachs and Nomura said UK interest rates probably already have peaked after inflation fell unexpectedly and investors backed away from bets for a hike from the Bank of England on Thursday.
Goldman Economists Ibrahim Quadri and Sven Jari Stehn said August’s drop in the Consumer Prices Index to 6.7% “surprised meaningfully to the downside.” Nomura’s veteran BOE watcher George Buckley also put out a note reversing his view.
“UK inflation data fell sharply this morning, with weaker service sector momentum a driving force,” Buckley wrote in a note Wednesday. “Combined with almost exclusively weaker economic data over the past month we have decided to change our call on tomorrow’s BOE decision and now expect no change in rates.”
The move marks a rapid shift in expectations about the BOE’s decision due tomorrow. Until yesterday, a survey of economists was almost unanimous in pointing toward another quarter-point hike in the central bank’s key rate, which is now 5.25%.
Goldman and Nomura are the most prominent bank yet to change its view on how the nine-member Monetary Policy Committee will vote.
“With today’s data, two out of the three indicators that the MPC has set out to monitor inflation persistence have now shown notably more progress than anticipated since the August meeting,” the economists wrote in a note to clients Wednesday. “Combined with their recent dovish commentary, we now expect the MPC to keep Bank Rate unchanged tomorrow and lower our forecast for the terminal policy rate to 5.25% (from 5.5% before).”
- UK’s Unexpected Inflation Drop Opens Prospect of Rates Pause
(Updates to include Nomura)
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