We expect GDP growth to average less than 1% annualised over the second half of this year, with the unemployment rate rising toward 7.3% early next year.
Core inflation is likely to remain above target before gradually heading back to 2% by the middle of 2026. As it becomes clear that the upside risks to inflation have eased, the Bank should come round to our view that it has more space to provide policy support. Despite the Bank’s guidance that it thinks it has done enough, we expect it to be forced to cut rates a further 50bp next year.
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