As underlying inflation readings continue to surprise to the upside few central bankers are patient enough to allow the long and variable lags of monetary policy.
  • By keeping policy settings too loose for too long, central banks have forfeited their right to be patient while tightening works its way through the system. 
  • With underlying inflation hitting new highs across the advanced economies, markets have further repriced rate expectations, reinforced by central bank rhetoric. 
  • We have revised up our own forecasts for the peak in policy rates for the US, UK and Eurozone. The largest revisions were to the UK in the wake of the government’s bungled mini-budget. 
  • Economic indicators have not differed enough from our September forecasts to make formal changes ahead of November. Not releasing Q3 GDP data prevented us from marking the China forecasts to market. 
  • That said, the pace and reactivity of monetary adjustment, together with the stickiness of underlying inflation, is largely reinforcing our confidence that a global recession will arrive in 2023. 
  • We are also sticking with our view that as tightening gives way to recession and disinflation, there is significant scope for interest rates to decline across the term structure in the second half of 2023.