March 20 (Reuters) – J.P. Morgan expects the Bank of England to hike interest rates by 25 basis points each in April and July, changing its stance of anticipating no change this year, after the central bank turned hawkish on higher inflation risks from the Middle East war.
The BoE kept the bank rate steady at 3.75% on Thursday and said inflation could climb to around 3.5%, above its 2% target, over the next two quarters.
The central bank acknowledged the risks of an economic slowdown, which could weaken inflationary pressures, but said the bigger risk was one of higher inflation, adding it “stands ready to act as necessary”.
Strategists at Goldman Sachs and BNP Paribas also flagged a significant risk of a near-term rate hike – potentially as early as the April meeting – if global energy prices continue to climb.
“The duration and magnitude of the shock thus far has not only opened the door to rate hikes but has also made them materially more likely than they appeared before,” BNP Paribas said.
ON RATE CUTS
J.P. Morgan said it expects inflation to ease next year, but only from spring, and is now forecasting two rate cuts in 2027 that will bring rates back to where they are now, it said in a note on Thursday.
Goldman and Morgan Stanley have pushed back their forecasts of two rate cuts this year and now expect the BoE to remain on an extended hold.
“In the case of a very swift resolution in the Middle East…we would see some chance of a cut in 4Q26,” Morgan Stanley added.
(Reporting by Joel Jose in Bengaluru; Editing by Sonia Cheema and Harikrishnan Nair)
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