Some signs that higher interest rates are working

Higher interest rates appeared to have started to take a bigger toll on bank lending in April and on businesses’ inflation expectations in May. These data will have reassured the Bank of England that higher interest rates are working. That said, we still think the Bank will need to raise interest rates further, from 4.50% to 5.25%, to generate the economic weakness required to reduce inflation all the way to the 2.0% target.