Rates heading to 3.0% as MPC focuses on inflation concerns

The weakening economic outlook has deepened the dilemma facing the Monetary Policy Committee (MPC). But we think the MPC is sufficiently worried about rising price/wage expectations to raise Bank Rate from 0.75% to 1.00% on Thursday 5^th May and to start shrinking the balance sheet quicker by selling gilts. Based on our forecast that the labour market will be tighter and that wage/price expectations will be more persistent, we expect the MPC to hike rates to 3.00% in 2023. That’s above the peak priced into the markets (2.50%) and the peak expected by a consensus of economists (2.00%). UK Drop-In (Thurs. 5^th May, 15:30 BST): Paul Dales and Ruth Gregory will be discussing our UK Economic Outlook, including our above-consensus call for UK interest rates, in a 20-minute online briefing after the May MPC meeting. Register now