With higher interest rates taking longer to percolate through the economy, we now think the recession will be shallower and GDP growth will stay weak throughout all of 2024. It’s a softer landing for the economy, but the runway is longer. And because the restraints on supply are unlikely to fade quickly, price pressures in the UK will take longer to ease than elsewhere. That’s why we believe the Bank of England won’t cut interest rates from 5.25% until late in 2024. That would be later than the Fed, the ECB and current market pricing of mid-2024. But a stagnant economy in 2024 will lay the groundwork for a more marked easing in price pressures in 2025 and more significant interest rate cuts. Our forecast that rates will be cut to 3.00% in 2025 is lower than the cuts to 4.00% priced into the markets.
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