What the Chancellor gives, the BoE will have to take away

The new fiscal stimulus announced by the Chancellor this week puts more pressure on the Bank of England to raise interest rates into restrictive territory. As result of this and other recent developments, we’re becoming more confident in our view that interest rates will rise from 1.00% now to 3.00% next year. What’s more, although we are forecasting a 25 basis point rate hike at the Bank’s next policy meeting on 16^th June, we think a 50 basis point hike is a bit more likely than the 10-20% chance priced into the markets.