A protracted peak

A slower fall in core inflation than in the US or the euro-zone will mean that the Bank of England keeps interest rates on hold at the probable peak of 5.50% for longer than the US Fed or the ECB. But our non-consensus forecast that higher interest rates will trigger a recession in the UK, albeit a very mild one, suggests that the Bank will cut interest rates all the way to 3.00% in 2025. That compares to investors’ current expectations that interest rates will still be as high as 4.50% by the end of 2025.