The Bank of England’s Monetary Policy Committee (MPC) is expected to hold interest rates steady in its upcoming meeting on 20th June, as inflation shows signs of easing.
May’s inflation figures, set to be reported on 19th June, are anticipated to show a slight drop from the previous 2.3%.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, commented on the situation: “There are high hopes that one of the darling buds of May unfurling last month was inflation finally hitting its target. After a disappointing reading in April, which saw the CPI index frustratingly hover elusively above 2%, disinflationary pressures are expected to have helped push prices down further.”
Unemployment in April rose to 4.4%, potentially making workers more cautious in their spending. This cautious approach is reflected in the latest economic growth figures, which showed a sharp slowdown in retail sector activity. The warm but wet May weather may have also contributed to reduced demand.
Streeter noted: “The last time inflation stood at 2% was in the run-up to the Euros in July 2021, as pent-up demand was unleashed while pandemic restrictions eased. As fans prepare to toast the tournament once more, seeing inflation finally return to target might be seen as a reason to put out more bunting, given how painful the cost-of-living crisis has been.”
However, the Bank of England is not expected to cut interest rates immediately. Policymakers are still focused on wage inflation, with earnings including bonuses still running at 6% at the last count. Streeter added: “A cut in August is still a very real possibility.”
