Saturday, April 1

HSBC Sees BOE Raising Rates Higher Than Previously Thought

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HSBC Holdings Plc has joined economists seeing a steeper path for inflation and interest rates from the Bank of England this year.

The bank now expects the BOE to raise rates by 25 basis points in March, May and August, taking the benchmark cost of borrowing to 1.25% — higher than a previously forecast 1%, senior economist Elizabeth Martins wrote in a report published Monday.

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That reflects upward revisions to HSBC’s expectations for wage growth in 2022, from 3.5% to 4.1%, and for peak annual consumer-price growth, from 3.2% in April to 7.2%. Oxford Economics raised its inflation forecast to 7.5% in April, following the larger-than-expected energy price cap rise announced by the UK regulator Ofgem earlier this month.

Martins pushed back, however, on “overdone” market expectations that rates could reach 2% by the end of the year, citing BOE Chief Economist Huw Pill’s warning last week that, later this year, higher inflation is likely to drive down real incomes and demand, sparking higher unemployment.

HSBC also revised down its growth forecasts to reflect the cost-of-living squeeze, seeing real incomes falling 2.5% in 2022 and staying flat in 2023. “The combination of higher inflation and lower growth makes for a tricky trade-off as the BOE’s The Monetary Policy Committee has been highlighting,” Martins said.

Andrew Goodwin, chief UK economist at Oxford Economics, questioned the need for aggressive policy tightening “given the prospect of such a large demand shock.”

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