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Interest rates to peak at 2.0%

We now think that Bank Rate will rise from 0.50% currently to 1.25% sooner than we previously thought. What’s more, we now expect three more 25 basis point rate rises in 2023, resulting in rates ending next year at 2.00%. That compares to the previous peak in our forecast of 1.25% and the peak of 1.75% priced into the financial markets.
Ruth Gregory Senior UK Economist
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UK Data Response

Consumer Prices (Jul.)

The encouraging evidence that the upward pressure on underlying inflation from global factors has started to ease will be of little comfort to the Bank of England given the signs that this is being replaced by more persistent domestic inflationary pressures. This increases the chances that the Bank of England will opt for a 50 basis point (bps) interest rate hike on 15th September, rather than 25bps.

17 August 2022

UK Data Response

Labour Market (Jun/Jul.)

June’s labour market figures revealed further evidence that the weaker economy is leading to a slightly less tight labour market. That said, by any metric the labour market is still exceptionally tight. And the robust rise in employment in June together with the leap in earnings growth will heap pressure on the Bank of England to raise interest rates by 50 basis points rather than 25 basis points at the next policy meeting on 15th September.

16 August 2022

UK Economics Weekly

Risk of a bigger and longer-lasting squeeze on real incomes

The prospect of a bigger rise in utility prices in October and in the first half of 2023 means the risks to our forecast for CPI inflation to rise from June's 40-year high of 9.4% to a peak of 12.5% in October are skewed to the upside. This increases the risk of a bigger and longer-lasting squeeze on households' real incomes and supports our view that consumer spending will be at the epicentre of a recession in 2022/23.  

12 August 2022

More from Ruth Gregory

UK Economics Weekly

Bank signals more hikes sooner rather than later

The MPC's policy statement this week cements our view that interest rates will rise further from 0.50% now to 1.25% by the end of this year and perhaps a bit further in 2023. If anything, the MPC's hawkishness suggests that rate hikes will come sooner than we anticipate.

4 February 2022

MPC Watch

February rate hike, and three more on the way in 2022

The further surge in inflation coupled with the rapid tightening in the labour market will probably prompt the Monetary Policy Committee (MPC) to raise interest rates from 0.25% now to 0.50% on Thursday 3rd February and begin quantitative tightening (QT). We now expect the MPC to hike rates four times to 1.25% by the end of 2022, above the level of 0.75% expected by most economists this year.

27 January 2022

UK Economics Weekly

Ramifications could be bigger if PM stays than if he goes

The growing uncertainty over the Prime Minister Boris Johnson's position is unlikely to dent economic activity. Arguably, though, if a leadership challenge is avoided or Boris Johnson wins it, the medium-term political and economic ramifications could be bigger than if he steps down. Even so, we doubt recent political events will transform the economic outlook this year, which is one of inflation rising to a peak of 7% causing the economy to be weaker than most expect and the Bank of England to raise interest rates from 0.25% now to 1.25%.

14 January 2022
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