The Bank of England appears to be putting more weight on the “stag” part of the stagflationary consequences of the war in Ukraine than the “flation” part. But our forecast that the labour market will remain tight going into next year and that the recent rises in price and wage expectations will prove sticky suggests that at some point it will have to respond more to the “flation” part. So although the Bank’s less hawkish stance had increased the downside risk to our interest rate forecasts, we still think rates will be raised from 0.75% now to 1.25% this year and to 2.00% next year.
Long Run Outlook Drop-In (23 March, 11:00 EDT/15:00 GMT): What will be the lasting impacts of the war in Ukraine? What legacies will the pandemic leave? What does a future of higher inflation mean for economies and markets? Neil Shearing hosts this special discussion with senior economists about the long-term investing outlook on Wednesday. Register here.
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