The BoE's Policy Implications
One noteworthy factor contributing to this optimistic outlook is the BoE's latest meeting.
Despite the upgraded forecasts for growth and inflation indicating a higher threshold for the incoming data to surpass, it also hints at the risk of more persistent inflation that might necessitate further monetary policy tightening.
"While the Bank’s significant forecast upgrades to growth and inflation present a higher bar for the incoming data to beat, it also reflects the risk of higher inflation persistence that would require additional monetary policy tightening," says Trivedi.
The BoE's dovish leanings, as revealed in the press conference, including Governor Bailey’s comment that “we have no bias at the moment,” might seem to soften the outlook.
However, the Bank's projections suggest a higher likelihood of further rate hikes, aligning with Goldman Sachs' economists' expectations for a firm labour market, robust wage growth, and solid services inflation data.
"The press conference offered more dovish bits, including Governor Bailey’s comment that 'we have no bias at the moment'," he adds.
The BoE's Aligned Stance and GBP's Positive Impulse
In a more detailed exploration of the Bank of England's forward guidance, Trivedi uncovers potential trajectories that underscore the possibility of more interest rate increases.
The Bank's projections seem to hint at a stronger chance of additional hikes, a viewpoint that aligns with Goldman Sachs' team of economists.
They anticipate that robust statistics in the labour market, wage increases, and stable inflation within the services sector will likely act as catalysts for further policy tightening.
"However, the Bank’s projections imply a greater likelihood of further hikes, consistent with our own economists’ expectation for the labour market, wage growth, and services inflation data to remain firm—likely pushing the BoE to hike by another 25bp in both June and August to a terminal rate of 5% (above current market pricing)." Trivedi adds.
A significant turning point for the Pound's near-term outlook is the shift in the BoE's policy stance, which is no longer deviating markedly from other G10 central banks.
"Most importantly, the BoE’s policy stance is no longer an outlier in the G10, shifting the previously negative impulse on the currency to a positive one," Trivedi remarks.
One noteworthy factor contributing to this optimistic outlook is the BoE's latest meeting.
Despite the upgraded forecasts for growth and inflation indicating a higher threshold for the incoming data to surpass, it also hints at the risk of more persistent inflation that might necessitate further monetary policy tightening.
"While the Bank’s significant forecast upgrades to growth and inflation present a higher bar for the incoming data to beat, it also reflects the risk of higher inflation persistence that would require additional monetary policy tightening," says Trivedi.
The BoE's dovish leanings, as revealed in the press conference, including Governor Bailey’s comment that “we have no bias at the moment,” might seem to soften the outlook.
However, the Bank's projections suggest a higher likelihood of further rate hikes, aligning with Goldman Sachs' economists' expectations for a firm labour market, robust wage growth, and solid services inflation data.
"The press conference offered more dovish bits, including Governor Bailey’s comment that 'we have no bias at the moment'," he adds.
The BoE's Aligned Stance and GBP's Positive Impulse
In a more detailed exploration of the Bank of England's forward guidance, Trivedi uncovers potential trajectories that underscore the possibility of more interest rate increases.
The Bank's projections seem to hint at a stronger chance of additional hikes, a viewpoint that aligns with Goldman Sachs' team of economists.
They anticipate that robust statistics in the labour market, wage increases, and stable inflation within the services sector will likely act as catalysts for further policy tightening.
"However, the Bank’s projections imply a greater likelihood of further hikes, consistent with our own economists’ expectation for the labour market, wage growth, and services inflation data to remain firm—likely pushing the BoE to hike by another 25bp in both June and August to a terminal rate of 5% (above current market pricing)." Trivedi adds.
A significant turning point for the Pound's near-term outlook is the shift in the BoE's policy stance, which is no longer deviating markedly from other G10 central banks.
"Most importantly, the BoE’s policy stance is no longer an outlier in the G10, shifting the previously negative impulse on the currency to a positive one," Trivedi remarks.