It is very unusual for the Bank of England to be cutting interest rates when inflation is above the 2% target and is expected to rise further. There’s a growing risk, then, that inflation fears will force the Bank to stop cutting rates. Equally, though, the recent sharp deterioration in measures of job growth have raised the likelihood of underlying price pressures eventually fading markedly. We suspect the Bank will juggle these growing two-sided risks by continuing to cut interest rates gradually, with weak wage growth eventually prompting the Bank to reduce rates to 3.50% rather than to the 4.00% priced into the markets.
We’ll be discussing the outlook for the UK housing market in a 20-minute online Drop-In at 3pm GMT on Wednesday 5th March. (Register here.)
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