The 0.6% q/q rise in GDP in Q1 confirmed that the recession ended at the start of this year and suggests the economy has been gathering momentum more quickly than we had anticipated. This raises the risk of a US-style situation in which the economy is much stronger, and inflation falls more slowly than we expect. Even so, at this stage, we don’t think the recovery will be strong enough to prevent inflation from falling further and the Bank of England from cutting rates to 3.00% next year.
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