Despite the easing in CPI inflation from 8.7% in May to 7.9% in June and core inflation from 7.1% to 6.9%, we think strong wage growth and the continued resilience of real GDP will mean interest rates will rise further, from 5.00% now to a peak of 5.50%. We suspect the downward trends in wage growth and services inflation will be slow and core inflation won’t fall to 2% until the end of 2024. As such, interest rates will probably stay at their peak until the second half of 2024, even though we expect the economy will be in recession later this year and early next year.
We’ll be discussing the implications of the Bank’s decision for the economy, the housing market and financial markets in a 20-minute online Drop-In at 3pm on Thursday 3rd August. (Register here.)
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