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Investors’ hawkish shift is justified

We don’t think that wage growth will ease to levels consistent with the 2.0% inflation target without weaker economic activity and a rise in the unemployment rate. The recent resilience of the economy suggests that the Bank of England may have to raise interest rates higher and/or keep them there for longer to generate a weaker economy. This supports our above-consensus forecast for Bank Rate to peak at 4.50% and stay there all year.

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