Real economic growth is slowing rather than collapsing in the face of the twin drags of higher inflation and rising interest rates. The Chancellor’s latest fiscal handout will help support GDP in the second half of the year. And with the Prime Minister and the Chancellor desperately needing to boost their popularity, some tax cuts may be announced before long. At the same time, there are still no real signs that the weaker activity outlook is reducing price pressures. In fact, we have revised up our CPI inflation forecast and now expect it to rise from 9.0% in April to 10.5% in October. This all supports our view that the Bank of England will raise interest rates from 1.00% now to 3.00% next year. In fact, the chances of the Bank raising rates by 50 basis points to 1.50%, rather than by 25 basis points to 1.25%, at the policy meeting on 16th June have increased.
BoE Preview Drop-In (14th June, 10:00 ET/15:00 BST): Just ahead of the June MPC decision, we’ll explain in this 20-minute briefing why we’re even more convinced that UK rates will peak at an above-consensus 3% next year. Register now.
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