Summary points of the 5 themes from Deutsche Bank Research note:
(1) While a recession feels inevitable, the scale and duration is far from certain.
(2) We are past the peak in inflation. But inflation persistence is likely to keep prices higher for longer.
(3) The labour market – two questions facing policy makers. Where will unemployment go in 2023? The answer will depend on two things: labour supply and demand. The former will remain constrained, and the latter supported by firms' prioritisation of worker retention.
(4) Fiscal policy tightening, but issuance expected to be historic. With pandemic and energy support waning, fiscal tightening is projected to gather pace over the coming years. But despite this, the Government's financing requirement is expected to be historic with 2023/24 gilt issuance likely to sit around GBP 290bn.
(5) Monetary policy – higher and for longer. More tightening is likely, and we expect the MPC to shift from policy tightening to policy restraint later this year. Rate cuts are likely only to crystallise in 2024 – at the earliest, given likely persistence in price pressures.
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Further on the Bank of England, DB's expected path for the central bank:
