While the economy has been remarkably resilient to higher interest rates and borrowing costs, the coming rise in CPI inflation is likely to dampen real GDP growth from 1.5% this year as a whole to 1.0% in 2027. And if we’re right that the labour market won’t be strong enough to generate a long bout of high domestic inflation, we think interest rates will rise from 3.75% to 4.25% by early next year rather than to 4.75-5.00% as market pricing suggests. But higher energy prices, a resilient economy and a stabilising labour market are testing that view.
We’ll be discussing the outlook for UK interest rates and the risks in a 20-minute online briefing at 3pm on Thursday 5th November. (Register here.)
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