The UK is not as exposed to the economic consequences of the war in Ukraine as the rest of Europe. Even so, in response to the surge in global commodity prices caused by the war we have dramatically revised up our inflation forecasts and modestly revised down our GDP growth forecasts. We now think CPI inflation will rise from 5.5% in January to a peak of 8.3% in April and that it will stay above 6.0% for all of this year and above 3.0% for most of next year. And we now think GDP will grow by 3.5% this year (4.0% previously) and by 2.2% next year (3.0% previously). We suspect that the Bank of England is amply worried that the rise in actual inflation will keep feeding into higher price expectations to raise interest rates a few more times, with the next move from 0.50% to 0.75% on 17th But the risks to our forecast that interest rates will rise to 2.00% next year lie on the downside.
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