The most surprising news from the Bank of England’s Inflation Report this week was not the suggestion that interest rates need to rise more quickly than the markets currently anticipate, but the strength of the message. Governor Carney was unusually direct in his warning that the markets are underestimating the degree of monetary policy tightening required over the next few years. The economic forecasts in the Inflation Report sent a strong signal too. Overall, we remain comfortable with our view that interest rates will rise three times by the end of 2021 to 1.50%, twice more than the markets expect.
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