Inflation: Currently Like A Slow Puncture

Posted on Apr 18, 2024. by NTI

Inflation fell more slowly than anticipated in March, causing some to predict that the Bank of England will delay cutting interest rates until much later in the year.

The Office for National Statistics (ONS) has reported that the consumer price index growth fell to 3.2% in March, from 3.4% in February, which was the lowest level for two and a half years. A bigger fall had been expected. Whilst food and energy inflation reduced, higher fuel costs, likely triggered by the instability in the Middle East causing increased international oil prices, reducing the fall in inflation overall.

Financial markets now think that the first, and potentially only, cut to interests to happen this year and only 0.25%, will come after the November monetary policy committee meeting. It was thought at the start of 2024 that the Bank of England would reduce rates several times over the course of the year.

Ruth Gregory, deputy chief UK economist at consultancy Capital Economics, said: “With utility prices set to fall by 12.3 per cent [month on month] in April, inflation will still just about fall below the 2 per cent target in that month.

“As long as inflation continues to fall fast in the coming months as we expect, the Bank may still feel comfortable cutting interest rates in June.”

The minimum wage has increased by almost 10%, and increases for a range of household bills took effect from 1 April. These could maintain current price pressures.

Governor of the Bank of England, Andrew Bailey, said earlier this week that there is “strong evidence” that UK inflation is receding, adding that “the dynamics for inflation are rather different now, between Europe … and the US”.

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