March 20 (Reuters) - J.P. Morgan on Friday said it expects the European Central Bank (ECB) to deliver two rate hikes in April and July, in sharp contrast to its previous forecast of steady rates
ECB, BoE could hike as soon as April on inflation pressures, brokerages say
Central Banks Face Renewed Inflation Risks Amid Middle East War
By Joel Jose and Siddarth S
March 20 (Reuters) - Major global brokerages see a higher likelihood of the European Central Bank and Bank of England delivering rate hikes, potentially as early as April, after policymakers warned that the Middle East war is driving renewed inflation risks.
Both central banks kept borrowing costs unchanged on Thursday and signalled they were closely monitoring the impact of surging oil prices on growth and inflation, stressing they stand "ready to act" to contain risks from the war.
Europe remains particularly vulnerable, given its heavy reliance on imported energy and the region's still-fragile inflation backdrop.
The U.S. Federal Reserve, too, left rates unchanged on Wednesday, projecting higher inflation amid elevated uncertainty.
Consensus Rising for ECB Rate Hikes
Brokerage Forecasts for ECB Policy
Barclays and J.P. Morgan expect a rate hike in the ECB's April policy meeting. The two also forecast a further increase in June and July, respectively.
Both Morgan Stanley and Deutsche Bank expect a 25-basis-point (bp) hike each in June and September.
This is a sharp shift from their previous forecasts for rates to remain on hold this year, and comes as ECB policymakers are expected to discuss hikes in the coming months, with the Iran war threatening to push up inflation in the euro zone.
Goldman Sachs' Scenario Analysis
In Goldman Sachs' "very adverse" scenario—which is close to the ECB staff's "adverse" scenario—the bank expects a cumulative 75 bps hike from the ECB, with sequential 25 bps hikes starting in June, but added that an early April hike was also possible.
"We believe that the likelihood of this hiking scenario has risen given the continued upward pressure on energy prices," Goldman added.
Traders are betting on about 72 bps worth of hikes from the ECB in 2026, as per data compiled by LSEG.
Diverging Calls on BoE Move
Expectations for BoE Rate Hikes
J.P. Morgan expects the BoE to hike rates by 25 bps each in April and July, changing its stance of no changes this year, after the central bank turned hawkish.
The BoE kept the bank rate steady at 3.75% on Thursday and said inflation could climb to around 3.5%, above its 2% target, over the next two quarters.
Strategists at Goldman, BNP Paribas and Barclays also flagged a significant risk of a near-term rate hike—potentially as early as April—if global energy prices continue to climb.
Outlook for Rate Cuts and Policy Tightening
Meanwhile, Goldman, Morgan Stanley and Citigroup pushed back their forecasts of two rate cuts this year and now expect the central bank to remain on an extended hold.
Citigroup and Morgan Stanley added they did not yet see enough evidence for policymakers to tighten policy soon.
"All of this is to say that while a hike is possible, it appears to be path dependent on variables that are yet unknown and difficult to predict," Citigroup said.
J.P. Morgan expects inflation to ease next year, but only from spring, and is now forecasting two rate cuts in 2027, while Morgan Stanley said it could "see some chance of a cut" in the fourth quarter this year if there is a swift resolution to the conflict.
Traders are betting on about 78 bps worth of hikes from the BoE in 2026, as per data compiled by LSEG.
(Reporting by Siddarth S and Joel Jose in Bengaluru; Editing by Sonia Cheema and Janane Venkatraman)
