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Inflation a persistent problem for the Bank of England

Lingering underlying price pressures and the continued resilience of economic activity has left us more comfortable than we were at the start of this week with our view that the Bank of England will raise interest rates by 25bps from 4.25% now to 4.50% in May and keep them there for all of this year. But we think the markets are not fully braced for the economic weakness that is required to reduce inflation all the way to the 2% target. If that economic weakness happens and successfully reduces inflation, then we suspect rates will be cut further than investors expect, to 3.00% by the end of 2024 and 2.50% by the end of 2025.

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