Rolling coverage of the latest economic and financial news, including the latest inflation report
Analysts at RBC Capital Markets predict inflation will drop to 8.4% in May, but could remain sticky.
They say:
However, with most of the downward contributions coming from fuels and food the risk is that even as headline inflation falls, services inflation (one of the indicators that the MPC have told us they are looking at for signs of persistent inflationary pressures) rises further from last month’s estimate of 6.9% y/y.
Ahead of this data, market pricing for tomorrow’s MPC decision is slightly more toward a 50bp move (32bp priced) than the unanimous expectation of 25bp amongst economists.
It is crunch time for Rishi Sunak and Jeremy Hunt, who want voters to judge the government by the progress it makes in tackling inflation and calming the markets. Halving inflation during 2023 was one of the five new year pledges made by the prime minister in January, but the decline so far has been slower than expected. To have any hope of winning the next election, Sunak and Hunt need interest rates to come down fast.
It is crunch time for the Bank, which has the job of hitting the government’s 2% inflation target and is now facing mounting criticism. So far the brickbats have tended to come from those who say the Bank was too slow to respond to price pressures and has allowed inflation to become embedded. But there are also those who say because interest rates work with a lag, the Bank risks driving Britain into a deep recession.
