London – In a notable shift, Morgan Stanley updated its forecast for the United Kingdom’s central bank on Friday, projecting that the Bank of England (BoE) will implement two consecutive 25‑basis‑point rate hikes. The first increase is expected in November, followed by a second in February.
Why the change?
The research note from Morgan Stanley’s analysts cites fiscal policy as the primary catalyst that could prompt tighter monetary conditions. “We formally change our BoE call to two quarterly hikes, with fiscal policy, we think, the key potential catalyst for more tightening,” the note reads.
Economic backdrop
The analysts also noted a projected slowdown in UK growth at the turn of the year, but they remain confident that global growth will stay robust enough to balance near‑term risks. This outlook comes after the BoE left its policy rate unchanged last week, while warning that prolonged conflict in the Iran region could force further rate moves.
Inflation outlook
In its recent statements, the BoE signaled that British inflation is likely to rise above 4% early next year, reinforcing the possibility of rate increases to keep price pressures in check.
Market reaction
Financial markets have taken note of the revised forecast, with the pound experiencing modest volatility and bond yields adjusting to reflect the anticipated policy path. Investors will be watching upcoming economic data releases, especially those related to fiscal spending and inflation trends, to gauge whether the BoE’s trajectory aligns with Morgan Stanley’s expectations.
What’s next?
The BoE’s monetary policy committee will meet again in November, where the first of the projected hikes could be confirmed. Analysts will continue to monitor fiscal developments, including government spending plans and tax measures, as these could influence the central bank’s decisions.
For businesses and consumers, the prospect of higher borrowing costs underscores the importance of prudent financial planning. Companies may face increased financing expenses, while households could see higher mortgage and loan rates.
Overall, Morgan Stanley’s updated outlook adds a new dimension to the ongoing discussion about the UK’s economic direction and the balance between supporting growth and curbing inflation.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
