The rises in energy and agricultural commodity prices and sterling’s recent fall will put some upward pressure on inflation, but we doubt that these factors will prevent it from easing from 2.5% now to about 2.0% in 2020. Admittedly, in the event of a “no deal” Brexit, inflation would probably rise above 3.0%. But we don’t think that this would prompt the Monetary Policy Committee (MPC) to raise interest rates more aggressively. If anything, the MPC might cut rates as it did in August 2016 after the Brexit vote.
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