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BofA Expects Bank of England to Hold Key Rate in September Meeting, Flags Rising Rate Hike Risks

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BofA Global Research forecasts the Bank of England will maintain its key rate at 3.75% at its Sept. 17 monetary policy meeting, with six votes in favor of a hold and three for a rate increase, assuming that the central bank is "waiting out" the energy shock.

"We expect the tone to shift more hawkish vs. July, highlighting greater upside inflation risks than before and the door kept open to a hike. The BoE is likely to acknowledge that upside risks to inflation have increased since July, given the re-escalation and move higher in energy prices, which if persists, can increase risks of second round effects. It has previously noted that risks of second round effects are likely to be stronger, the larger and more persistent the shock is," analysts said Friday in a preview note.

Looking ahead, BofA anticipates the BoE to leave the rate unchanged through the remainder of 2026, followed by a 25 basis-point cut to 3.5% in November 2027, amid limited second-round effects and a soft labor market. However, analysts said conviction "is reducing" and that the risk of a hike is rising.

"The move higher in the inflation outlook due to higher energy prices implies that risks of a hike later this year/early next year have become more pronounced, if evidence on strong second round effects emerge, the risks of which are larger the more prolonged or worse the energy inflation shock is," BofA added.

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International

El Niño Climate Phenomenon Could Pose Risk to Pasture-Based Agriculture in New Zealand, Westpac Says

A developing El Niño climate phenomenon pattern threatens an increased risk of drought in many parts of New Zealand, with the main economic risk being to pasture-based agriculture, Westpac said in a report on Friday.A strong El Niño is developing and could intensify further, raising the risk of hot, dry conditions across parts of New Zealand over summer. It is expected to strengthen further in the next few months and persist into mid-2027. Dairy, sheep and beef farming in particular are at risk, where drought can reduce pasture growth, lower production, raise costs and disrupt processing patterns across the season.In worst-case scenarios, severe droughts in the past have led to as much as one percentage point being cut from gross domestic product growth.There is a clear downside risk to agricultural production, and these impacts are predominantly supply-side effects that reduce potential output. However, the impact is highly uncertain, the bank cautioned.Inflation effects are likely to be mixed but pointing higher, with potential upward pressure on dairy and imported food prices, partly offset by downward pressure on meat prices in the near-term.

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International

Australian Card Transaction Activity Softens in Late August But Quarterly Growth Continues to Firm, Westpac Says

Australian card transaction activity fell slightly in late August from a historical high earlier in the month, although quarterly growth momentum has continued to strengthen and is now in the 1.3% to 1.5% range, Westpac said in a Thursday report.The Westpac-DataX Card Tracker Index fell to 158.1 in the week ended Aug. 29, a decline of 1.1 points from the 159.2 reading for the week ended Aug. 8, the report showed.While the quarterly growth marks the strongest pace of expansion since late March, more of the gain now appears to be coming from higher fuel spend as petrol prices have again topped AU$2 per liter following the end of temporary excise tax cuts, the bank said."The latest card tracker data shows a pick-up in nominal spending growth momentum but a significant part of the lift, potentially up to half, looks to relate to higher prices rather than volumes," Westpac said.Meanwhile, monthly growth momentum saw some softening, tracking a milder 0.2% gain for August, down from the 0.7% to 0.9% pace registered from May through July.Victoria continues to lead other regions, with quarterly growth running at 2.2% compared with growth rates of 0.9% to 1.5% across other major states, the bank said.

ASX 200
International

Large Japanese Manufacturers' Sentiment Rebounds in Q3

The business survey index, or BSI, for large manufacturers in Japan rose 7.6% in the third quarter, reversing the 1.8% contraction in the second quarter, according to data from the Ministry of Finance's Policy Research Institute on Friday.That reading beat the consensus forecast for 2.5% growth, according to Investing.com.Meanwhile, the non-manufacturing sector's BSI rose 4.2% in the July-to-September period, recovering from a flat movement in the previous quarter.The all-industries BSI jumped 5.3% during the third quarter, also rebounding from the 0.5% decline previously.

Nikkei 225