The data published since the start of the year suggest economic activity and price pressures have strengthened. But we still expect annual GDP growth to slow and the weak labour market to weigh on price pressures. This and the smaller rises in regulated prices this year than in 2025 mean we think CPI inflation will fall below the 2.0% target this year and stay there. That will allow the Bank of England to cut interest rates from 3.75% now to 3.00% this year, rather than to 3.50% as investors anticipate. That said, if Starmer and/or Reeves were to be replaced by a top team in favour of higher public spending then interest rates may not fall as far.
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