Slowing momentum in activity, the recent decline in employment, and the sharp falls in core CPI and services inflation in August are clear signs that higher interest rates are weighing more heavily on the economy. This strengthens our view that the mild recession we have been forecasting is around the corner, if not under way already, and that core inflation has peaked and will fall further. That said, we still suspect that wage growth and services inflation will fall only slowly. That’s why we think the Bank of England will hold interest rates at their current level of 5.25% until late in 2024.
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