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Tories are calling for the Bank of England to cut interest rates despite market gloom over new inflation data.
Analysts say the chances of a cut in June are now slim after inflation fell to 2.3 per cent in April from 3.2 per cent in March – the lowest level in nearly three years – but above the 1.9 per cent to 2.1 predicted by some analysts.
But Sir Jacob Rees-Mogg, the former Conservative business secretary, argued the Bank should have cut rates already because “inflation is a lagging indicator.”
Paul Scully, a former minister, said cutting the rate would “bring relief to many who are fixing their mortgages for the next few years”.
Paula Bejarano Carbo, NIESR economist, added said persistent core inflation and strong wage growth data suggested the Bank “may exert caution at its upcoming meeting and hold interest rates, despite today’s encouraging fall in the headline rate.”
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said a June cut was now “unlikely”.
We’re finishing our live coverage of the latest inflation data.
The rate dropped to 2.3 per cent in April from 3.2 per cent in March – the lowest level in nearly three years – but remained above what some analysts had predicted.
Thanks for reading and join us again soon for all the latest updates on the economy.
Have a good rest of morning.
Welcome
Good evening, and welcome to our inflation blog that will cover analysis and reaction to the figures that are due to be released on Wednesday.
What is inflation?
The Bank of England (BoE) defines inflation simply as a term used by economists to “describe the increase in prices over time”.
Rising costs of goods and services on the UK high street indicate that the value of the British pound is in decline, which in turn means a reduction in consumers’ purchasing power and therefore their quality of life, as they are discouraged from spending more than they can afford.
This in turn eats into national economic growth.
April’s data could be ‘make or break’ for the Bank of England
Experts said April’s data could be “make or break” for the Bank, which has been waiting for firm evidence that CPI has reached its target level before it can cut interest rates.
James Smith, a developed markets economist for ING, said: “It’s no exaggeration to say that this week’s UK inflation data will make or break a June rate cut from the Bank of England.
“The result is that headline inflation will, we think, dip below the Bank of England’s 2% target in May’s data due in June and stay there for most – if not all – of this year.
“But in the very short term, there’s still some uncertainty over services inflation.
NewsBusiness UK inflation predicted to drop close to Bank of England’s 2% target
UK inflation could get close to the Bank of England’s target of 2 per cent when the latest figures are released by the Office for National Statistics (ONS) on Wednesday.
The Consumer Prices Index (CPI) dropped to 3.2 per cent for March, compared with the previous year, and forecasters polled by Reuters think inflation will drop to 2.1 per cent for April.
Pantheon Economics predicts a slightly lower figure of 2 per cent and Capital Economics thinks that it could dip even lower to 1.9 per cent. The Bank of England’s (BoE) own forecast is 2.1 per cent.
Joe Middleton reports.
Watch: What is inflation?
How much is inflation expected to fall by?
CPI inflation is expected to fall to 2.1% in April from 3.2% in March, according to a consensus compiled by Pantheon Macroeconomics.
This would mark the lowest level since July 2021 when inflation was recorded at 2% – the Bank of England’s target level.
Lower gas and electricity prices compared with the prior year are expected to be the key driver behind price rises cooling last month.
What will happen to services inflation?
Pantheon Macroeconomics said it expects services inflation to fall to 5.4 per cent in April from 6 per cent in March.
Luke Bartholomew, senior economist for Abrdn, said that services inflation will likely be more important for policymakers at the Bank of England than the overall inflation figure.
“While returning inflation to target is psychologically significant, and symbolic of how much progress has occurred since inflation peaked above 11%, it is unlikely to be the number watched most closely by the Bank of England and investors,” he said.
“If services inflation comes in line with expectations, this will keep a June rate cut in play.
“But a large upside surprise will likely see the market scale back its bets on a June cut, and start to look to August for the beginning of the easing cycle.”
Watch: What is inflation?
UK inflation predicted to drop close to Bank of England’s 2% target
UK inflation could get close to the Bank of England’s target of 2 per cent when the latest figures are released by the Office for National Statistics (ONS) on Wednesday.
The Consumer Prices Index (CPI) dropped to 3.2 per cent for March, compared with the previous year, and forecasters polled by Reuters think inflation will drop to 2.1 per cent for April.
Pantheon Economics predicts a slightly lower figure of 2 per cent and Capital Economics thinks that it could dip even lower to 1.9 per cent. The Bank of England’s (BoE) own forecast is 2.1 per cent.
Source: independent.co.uk
