JPMorgan Chase reverses expectations! The Bank of England and the European Central Bank's double rate hikes of 25 basis points in April and July 2026, as well as rate cuts, are postponed to 2027.

JieTong Finance APP News — According to JieTong Finance APP reports, Morgan Stanley’s latest currency policy path forecast has undergone a significant adjustment. The bank now expects the Bank of England to raise interest rates by 25 basis points in April and July 2026, previously predicting rates to remain unchanged throughout the year. Similarly, the European Central Bank (ECB) will adopt the same rate hike rhythm, reversing its previous expectation of no change for the entire year. This shift mainly stems from ongoing concerns about the risk of a second-round inflation effect, even though current inflation shows signs of easing, sticky wages, housing, and service prices may still push core inflation higher.

Morgan Stanley further details the timing of rate hikes. For the ECB, it is highly likely that the April meeting will confirm the March baseline forecast, with a second rate hike in July after new projections are released in June, ensuring decisions are well-supported by data. Once the risk of a second-round inflation effect diminishes, the bank believes the ECB will have sufficient reason to gradually reverse its tightening stance, but currently only expects one rate cut in the second half of 2027. The path for the Bank of England is similar, with rate cuts scheduled for Q2 and Q4 of 2027, with a more gradual overall pace.

This forecast adjustment reflects a shared concern among global central banks about persistent inflation in a high-interest-rate environment. Fluctuations in energy prices, geopolitical factors, and wage growth inertia could prolong the tightening cycle. Morgan Stanley emphasizes that the market’s current pricing of premature easing needs cautious correction.

Below is a comparison of Morgan Stanley’s latest forecast with previous predictions (based on the March 2026 report):

Overall, the prolonged tightening by the Bank of England and ECB will increase borrowing costs in the Eurozone and the UK, short-term negative for stocks and real estate sectors, but will help further anchor inflation expectations. Markets should closely monitor signals from the April meetings and the June forecasts to assess the likelihood of actual implementation.

Summary:

Morgan Stanley’s forecast shift highlights the cautious attitude of major central banks in the face of stubborn inflation. The 2026 two-rate hikes and limited rate cuts in 2027 serve the goal of prioritizing the mitigation of second-round effects. The synchronized tightening by the Bank of England and ECB will jointly influence the global interest rate environment. Investors should focus on core inflation data, wage trends, and geopolitical factors to dynamically adjust expectations for bonds, currencies, and asset allocations.

【Frequently Asked Questions】

Q1: Why did Morgan Stanley suddenly reverse its previous forecast of no rate changes throughout the year?

A: The core reason is that the risk of a second-round inflation effect has not fully dissipated. Although headline inflation has fallen, wages, housing, and service prices remain sticky. Morgan Stanley believes additional rate hikes are necessary to further suppress demand and prevent a price spiral.

Q2: What are the specific differences in timing between the Bank of England and ECB rate hikes?

A: Their pace is highly aligned, both increasing by 25 basis points in April and July 2026. However, the ECB may confirm its March forecast in April, wait for new data in June, and implement the second rate hike in July to ensure decisions are more data-dependent.

Q3: Why are rate cuts postponed significantly to 2027, and why are there only a few?

A: Morgan Stanley believes that only once the risk of a second-round inflation effect is fully eliminated will there be room for reversal. The Bank of England plans to cut rates once in Q2 and once in Q4 of 2027, while the ECB will cut only once in the second half of the year. The overall pace is slow, aiming to avoid premature easing that could reignite inflation.

Q4: What are the practical impacts of this forecast on the Eurozone and UK economies?

A: Borrowing costs will rise further, increasing pressure on corporate financing and mortgage markets, potentially dampening consumption and investment in the short term. However, in the long run, it will help stabilize price expectations and create conditions for sustainable growth. Stock and bond markets may face short-term pressure, while the GBP and EUR exchange rates could be supported.

(Edited by: Wang Zhiqiang HF013)

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