The hawkish comments made by the Bank of England Governor, Andrew Bailey, at this week’s ECB annual Sintra gathering marks the latest step by the Bank to get on the front foot in its fight against inflation. The chances of interest rates rising above our peak forecast of 5.25% are growing. But with around 60% of the drag from higher interest rates yet to be felt, we still think the economy will tip into a recession in the second half of this year. That’s why we think rates are more likely to peak at between 5-6% rather than between 6-7%, as investors currently expect.
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