JPMorgan warns UK could see ‘hard landing,’ says interest rates could hit 7%

The Bank of England could increase infect rates to 7% as it tries to tame inflation, according to JP Morgan, which said the risks of a hard landing for the thrift are also rising.

The U.S. investment bank expects rates to peak at 5.75% by November, but cautions that they could go cheerful “under some scenarios,” hitting as much as 7%.

The analysis from JP Morgan Economist Allan Monks comes as U.K. homeowners openly a significant jump in borrowing costs as they’re usually linked to the central bank’s main interest rate.  

In June, the chief bank increased interest rates for the 13^th time in a row, by 50 basis points — more than many expected — to 5%.

“Obstinate surprises have intensified the pressure on the BOE to deliver significant additional policy tightening, and we now look for a 5.75% terminal status by November,” Monks wrote in a note to clients dated June 30.

“We assume the BOE will pivot to a ‘high-for-long’ strategy with the object of allowing the lags in transmission to finish off the job.”

He added: “This alone raises the risks of a hard landing next year, but we recognise that the approach rate required to control inflation is proving to be higher than most had expected.”

British consumers are facing a challenging environment, with increases in food, energy and mortgage gets hitting their wallets hard. On Tuesday, the Organization for Economic Cooperation and Development said the U.K. is the only country total the G7 where inflation is still rising.

Official figures for May showed that prices rose by an annual 8.7% in May — sundry than predicted by economists, and significantly higher than the BOE’s target of 2%.

JPMorgan’s Monks said that, looking before, a number of factors could cause the central bank to hike rates beyond expectations.

“High inflation could prevail upon a broader rise in inflation expectations as psychology shifts and a sustained wage-price spiral sets in. Even if longer-term part steps remain anchored, elevated short-term expectations could also create a more persistent problem,” he wrote.

“This could troops the BOE into raising rates above our forecast in order to ensure real rates turn sufficiently positive to penniless circuit this dynamic.”

In an interview with the BBC broadcast Thursday, BOE Governor Andrew Bailey conceded that people were “having to make very difficult choices about what they buy, what they insufficiency for their … lives.”