MNI BRIEF: NIESR See​s UK Recession, Bank Rate Holding At 3%

The UK will slip into recession later this year and the Bank of England will raise its benchmark rate will to 3.0% from the current 1.25%, stay there until the end of its three-year forecast horizon, the National Institute of Economic and Social Research forecasts Wednesday.

Markets have fluctuated between showing the policy rate peaking at 2.5% or close to 3.0% but have assumed that it would soon dip lower but NIESR sees the Bank of England having to hold it at 3% to get inflation down to target and to keep it there despite the looming recession.

NIESR forecasts negative quarterly growth from Q3 this year through to Q1 next year, with NIESR Deputy Director Stephen Millard, a former senior BOE economist, stating that the UK is facing stagflation, with inflation on the target CPI measure set to peak around 11% and on the RPI measure, used for index linked gilt payments, at 17.7%. The BOE will publish its updated forecasts Thursday.