Due to the rise in energy prices, we now think that CPI inflation will fall to 2.5% in April (2.0% previously) before rebounding to 2.8% later this year. But with the labour market much weaker than it was during the 2022 energy price shock, as shown by our proprietary UK labour market indicators, the new hump in inflation will probably prove short-lived. We think the Bank of England will cut interest rates from 3.75% to 3.25% by the end of this year, and perhaps eventually to 3.00% in 2027, rather than raise them to 4.00% as investors expect.