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Doubting the BoE’s improved outlook for activity

The most striking thing about the Bank of England’s policy meeting yesterday was the big upward revisions to the Bank’s real GDP forecasts. It makes sense that the Bank has become less downbeat. Despite the fastest and largest rise in interest rates since the late 1980s, the economy has remained remarkably resilient. However, with the full drag on activity from higher interest rates yet to be felt, we still think there’s a decent chance that the economy will slip into a recession. After rising by 25 basis points from 4.25% to 4.50% yesterday, we suspect interest rates are now at their peak and that hike will be last in this cycle.

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