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3% is the magic number for interest rates

Our new forecast that interest rates will be raised from 0.75% now to a peak of 3.00% next year is more hawkish than the peak priced into the financial markets (2.50%) and the peak expected by the consensus of economists (2.00%). That’s because we think that even as economic growth slows the labour market will remain tighter for longer and there is a risk that price/wage expectations don’t come down quickly.

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