Higher interest rates for longer make a recession more likely

The most troubling aspect of April’s inflation data, released earlier today, was evidence that price pressures are becoming increasingly domestically generated. Accordingly, we now expect the Bank of England to raise interest rates further than we previously thought, from 4.50% now to a peak of 5.25%. This makes a recession at some point more likely – although the recent resilience of economic activity suggests that it may now happen a bit later than we had anticipated.