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<\/a><\/p>\nLONDON (Reuters) – A number of banks including Morgan Stanley and Deutsche Bank on Wednesday revised upward expectations for further UK interest rate hikes as a second straight day of data suggested price pressures remain elevated.<\/p>\n
Britain was the only country in western Europe with double-digit inflation in March after it fell less than expected, official data showed on Wednesday. <\/p>\n
Morgan Stanley analysts said they now expect a 25 basis point (bps) rate hike from the Bank of England in May, and see “clear risks of a June move too”.<\/p>\n
Previously, the bank had anticipated no change in UK rates next month.<\/p>\n
“With sequential pressures in inflation this strong, it is hard to see how the tightening cycle can be stopped. Hence, we now expect a 25bp hike from the BoE in May,” Morgan Stanley UK economist Bruna Skarica said.<\/p>\n
Bank of America, BNP Paribas and RBC Capital Markets said they too now expected a 25-bps rate hike from the BoE in May compared to a previous call for no change.<\/p>\n
Deutsche Bank said it also expects two more rate hikes from the BoE, taking the terminal rate to 4.75% in June. <\/p>\n
Bank of America said it forecast the terminal rate at 4.5%.<\/p>\n
Data showing Britain’s inflation at an annual rate of 10.1% in March, well above the 9.8% forecasts by economists, followed data on Tuesday showing British wages rose fasted than anticipated last month.<\/p>\n
“Importantly, we now see risks to our terminal rate forecast skewed to the upside,” said Deutsche Bank senior economist Sanjay Raja. <\/p>\n
Investors now fully price in a quarter-point interest rate rise to 4.25% on May 11 after the BoE’s next meeting – up from an 80% chance on Tuesday – and expect rates to peak at 5% by September, according to futures markets.<\/p>\n
The Bank of England started hiking interest rates in late 2021 and was one of the first major economies to kick off the tightening cycle. <\/p>\n
\n(Reporting by Sam Indyk and Dhara Ranasinghe; editing by Jonathan Oatis)<\/p>\n
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