Morgan Stanley has formally changed its Bank of England call to two rate hikes, in November and February, pointing to fiscal policy as the key potential catalyst for further tightening beyond that. Economists led by Bruna Skarica said they see the September meeting and Deputy Governor Lombardelli's remarks as "quite balanced," with the Monetary Policy Committee keen to stress that both the November hike and the broader path ahead remain uncertain. The bank said newsflow in commodity markets "is not improving," making it harder to justify a prolonged pause as its central scenario given recent developments in the Middle East, and it noted its call still looks dovish relative to roughly 100 basis points currently priced into the front end of the U.K. yield curve. Morgan Stanley estimates current fiscal headroom at approximately £8 billion, and said a £5 billion uplift to day-to-day spending to account for higher inflation could further reduce that buffer, meaning between £10 billion and £15 billion of revenue-raising measures may be needed to lift the budget surplus toward £15 billion without additional spending cuts. The bank also updated its gilt yield forecasts to reflect the new Bank Rate path, projecting two 25-basis-point hikes in November and February, and said attention is expected to increasingly shift toward the Budget, particularly the scale and front-loading of fiscal consolidation and its implications for near-term gilt supply.
Morgan StanleyMorgan Stanley changes its BoE call to two hikes and updates gilt forecasts; this is its own research view, not a company-specific financial event.
Morgan Stanley expects two BoE rate hikes (Nov and Feb), a policy tightening signal that strengthens sterling.
