Following the central bank’s eleventh consecutive hike last week, Barclays increased its terminal rate forecast for the Bank of England’s benchmark policy rate by a quarter point to 4.5%.
Barclays expected the Bank of England to pause at its March meeting, but after a 25 basis point hike to 4.25% and data last week showing an unexpected rise in British inflation, the British bank maintained its call for another quarter percentage point hike in May.
Barclays also raised its forecast for the UK’s GDP for the first three quarters of the year by 0.1-0.2 percentage points, citing a rebound in manufacturing in the first three months of 2023, as well as a stronger-than-expected pickup in economic growth in January.
According to Barclays economists led by Marian Cena, the new forecast implies a “minimal recession.” They anticipate a 0.3% year-on-year decline in GDP in 2023.
Following this year’s hikes, Barclays forecasts 100 basis points (bps) of bank rate cuts in the second half of next year, 50 bps more than its previous forecast. It expects the rate to end the year at 3.5%.
“If the policy stance remains unchanged, the (monetary policy) committee should be aware of the risks of inflation falling well below target at the relevant policy horizon by mid-next year. As a result, we anticipate policy rates to become more accommodating “Cena stated.
