Europe Economic Weekly Patiently hawkish

Europe Economic Weekly Patiently hawkish

Weekly view: Yes, December is a headache 18 September 2026 Our commodities team has raised their natural gas price forecasts for the winter. An Economics ECB hike in Dec may be the natural slope then. Cuts will still follow, we think. Europe

Euro area: Corporate health check – deteriorating BofA Euro Economics Our corporate health measure moved “vulnerable” territory in 1Q26. Financial conditions and activity were the swing factors. First 2Q26 signals don’t look much better.. Ruben Segura-Cayuela Europe Economist UK: BoE review- Hawkish hold, increasingly nervous BofA Europe (Madrid) The BoE was on hold, with 6-3 vote. Decisive hawkish shift with the BoE looking closer to tightening, if the recent rise in energy prices is sustained. We keep our call of no hikes Evelyn Herrmann this year under review. Recent energy moves, if they persist, could make a hike in Nov. Europe Economist BofASE (France) our base case. But we do view market pricing of close to four hikes as excessive. Hot topics 1&2: SNB, Riksbank and Norges – Sep-hold? Sonali Punhani UK Economist We see the SNB comfortably on hold. Risks of a rate hike from Norges before year-end MLI (UK) are rising. We still see the Riksbank more likely to hike in Dec than next week.

Hot topic 3: French bonds under the radar Chiara Angeloni Europe Economist Very tight financial conditions, cyclical weakness, political uncertaint: our colleagues see BofA Europe (Milan) potential for 10y OAT-Bund yield spreads to widen above 100bp. See Team Page for List of Analysts Next week: German state elections (Sun), September surveys incl “flash” PMIs (Wed, French INSEE business sentiment, German Ifo (Thu). BoE, Norges, Riksbank, SNB rate decisions (Thu). Exhibit 1: Current market prices and our collesgues’ new forecast (with TTF at EUR 100 in the Glossary on page 22 winter, vs EUR 65 before) still see a less persistent shock than the ECB’s adverse scenario. Synthetic energy prices (weighted average of gas and oil prices), % deviation from ECB Sep-27 base case

30.0% BofA forecast 17-Sep ECB mild

-20.0% Jun-26 Sep-26 Dec-26 Mar-27 Jun-27 Sep-27 Dec-27 Source: BofA Global Research, ECB staff projections BofA GLOBAL RESEARCH

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Weekly view Yes, December is a headache, for some even November As we read it, the ECB has given the signal that a December hike may be warranted given recent data and energy price developments, in particular. We haven’t yet changed our call of no further hikes, but we have to acknowledge that today's energy prices, if they persist, would make a December hike the natural slope from here.

Our commodities team have just raised their winter TTF forecast from EUR 65 to EUR 100, a level that would probably nurture ECB concerns (see Global Energy Weekly: Praying for El Niño is not a TTF strategy 15 September 2026). Oil prices are also above the levels included in our last forecast update and look increasingly likely to stay there.

In short, we are now more likely to end up getting a bit less growth, a bit more inflation and another hike from the ECB versus what we had in our last forecast update (see report: Euro Area Viewpoint: Back to school – September 2026 edition 01 September 2026). And yes, we understand that the focus is on inflation effects from energy. But we continue to worry that the real economy – although not falling off a cliff – will ultimately end up weaker, too, from higher energy prices and tighter financing conditions. We will fine-tune our numbers in the next few days, but our finger is on the (ECB call) trigger.

What has not changed is overly hawkish market pricing, in our view. And we would argue the ECB, at least implicitly, agrees (and explicitly, according to ECB sources saying the three additional hikes then priced were a bit too much). We reiterate the…