JP Morgan economists say their central forecast is a rise to 5.75% (hitting there in November) but warn there are 'potential upside to rates if expectations do become unanchored or remain high'. Which could force the BoE to lift to 7% and precipitate a hard landing recession for the UK economy.
JPM point to higher nominal wage growth offsetting some of the more costly mortgages even after all the BoE rate hikes, which may push hikes higher, to 7%. Also, business expectations for inflation, forecasts for core prices and Taylor Rule adaptation also indicates to rates of close to or even above 7%.
- “A break in behaviour, or hard landing, looks increasingly likely at some point over the next year if inflation is to be brought under control in the UK”
- “The main question is whether the BOE will get some help from external sources in delivering this adjustment, or whether it will have to do all the heavy lifting itself.”
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ps. In a nutshell the Taylor Rules is that if inflation is above target, or if GDP is above potential, a central bank should raise interest rates.
Not really rocket science.
