The two-sided risks to our rate forecasts

Our view is that Bank Rate will rise from 4.00% now to a peak of 4.50% and stay there for all of this year before being cut to around 3.00% by the end of next year. But the two-sided risks to our forecast have been neatly illustrated this week. If the resilience in the economy continues and inflation proves to be stickier, interest rates may need to rise above 4.50% and/or stay high well into next year. In contrast, the turmoil in the banking sector is likely to accelerate the coming economic weakness. If the global banking issues result in a lasting tightening in credit conditions, that may mean interest rates don’t rise to 4.50% and are cut before the end of the year.