The stagflationary effects of the leap in energy prices means that we now expect CPI inflation to rise to a peak of 4.6% later this year, rather than falling below the Bank of England's 2.0% target previously, and real GDP to grow by 0.5% compared to 1.0% before the conflict. We think the Bank of England will put equal weight on the rise in inflation and weaker activity and keep interest rates at 3.75% this year. But with the labour market particularly weak, as shown by our proprietary UK labour market indicators, rates could still be cut in 2027, perhaps to 3.00%.