After enduring a higher inflation rate than most of its peers for the bulk of the past five years, we think that 2026 will be the year that inflation in the UK falls back to the 2.0% target. That will have a lot to do with the loosening in the labour market over the last year exerting more downward pressure on wage growth over the next year. This further and faster fall in CPI inflation than widely expected explains why we think the Bank of England will cut interest rates from 4.00% now to 3.00% in 2026 rather than to the low of 3.50% investors anticipate.
We’ll be discussing the outlook for Bank of England, Fed and ECB policy in a 20-minute online Drop-In at 3pm on 18th December (register here).
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