Rapid recovery to limit scarring

While we think the reopening of the economy and the vaccine rollout will allow GDP to return to its pre-pandemic level a bit earlier than most forecasters, the big difference between us and the consensus is that we don’t think the pandemic will significantly scar the future level or growth rate of GDP. Such a fast and full economic recovery will prompt inflation to rise above the 2% target and stay there. But as we don’t envisage that happening until 2023 or 2024, we think the markets have gone too far in pricing in interest rate hikes before the end of 2022. We think Bank Rate will stay at 0.10% until 2025.