What if we’re wrong on inflation?

This week’s data releases have made us more confident that the Bank of England will raise interest rates in December. But our forecast that inflation will fall back sharply in 2022 underpins our view that interest rates will rise to only 0.50% in 2022 and will only reach 1.00% in 2023. That said, in an upside scenario where inflation doesn’t fall back as far as we expect, it is possible that interest rates would need to rise to 2.00% by the end of 2023. That would trigger a marked deterioration in the outlook for activity and raise the risk of a recession.