Pan Sen Macro: UK defense spending may rise further, which will push inflation higher

On March 11, Panson macroeconomists pointed out in a report that by 2027, the UK's defense spending as a percentage of GDP may rise further to 3.0% from the recently announced 2.5%. "We believe that if the administration needs to compensate for the decline in U.S. support for Ukraine and provide a peacekeeping force, then it will most likely have to announce a significant increase in defense spending by December, perhaps even sooner." Such an increase could push up inflation and keep UK interest rates higher than previously expected. "We expect the Bank of England to stop cutting interest rates at 4.0%, compared to the previous forecast of 3.75%," they said. ”