Today’s grave escalation of the Russia/Ukraine conflict threatens to keep CPI inflation in the UK even further above the 2% target this year and reduce households’ real incomes by even more. The conflict probably won’t prevent the Bank of England raising interest rates again in March, although it may reduce the chances of a 50bps hike. And it may not prevent more rate hikes thereafter since the Bank is worried that high inflation will feed into higher price expectations and faster wage growth.
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