While we suspect the labour market is too weak to generate big second-round effects, the inevitable rise in CPI inflation from 2.8% in April to a peak of 4.0% early next year under our baseline scenario for energy prices will present a test of nerve for the Bank of England. But the economic backdrop for this energy price shock is very different to during the 2022 leap in energy prices. As a result, we doubt the Bank will raise interest rates from 3.75% now unless the Strait of Hormuz remains closed for some months yet.
Subscriber content
Read this in full, free
Start a free trial and use one of your 10 free starter credits to unlock this piece.
