Better news on UK inflation paves the way for a rate cut in May
Commenting on the latest inflation figures, Economics Fellow at the Institute of Economic Affairs Julian Jessop said:
“The broad-based fall in headline inflation to 2.6% in March is another step in the right direction. The services and core rates excluding food and energy are still relatively high, but they fell too.
“Inflation is still set to rebound to at least 3% in April, led by energy and water bills and the pass through of higher labour costs. Nonetheless, the peak should now be comfortably below the 3.7% expected by the Bank of England and OBR.
“In the meantime, the latest jobs data confirm that the labour market is cooling. Moreover, money and credit growth remain too weak for any pick up in headline inflation to be sustained.
“The main uncertainty now is the fallout from the global trade war on both demand and supply. The net effect on UK inflation could still go either way.
“But the immediate impact has been to depress global energy prices, which are now much lower than the Bank of England had assumed.
“The upshot is that the Bank now has the green light to cut interest rates again in May. The MPC will probably want to stick to their ‘gradual’ approach and only trim rates by another quarter point. But there is a strong case for returning rates to a neutral level more quickly with a half point cut.”
