MHA | No cut in interest rates until August as inflation is down but…

No cut in interest rates until August as inflation is down but not out

June 19th 2024
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Professor Joe Nellis, MHA’s Economic Advisor, speaks with Bloomberg UK on today’s inflation data;

The Bank of England will be breathing a sigh of relief that - at last - inflation has fallen to its 2% target for the first time in three years, this is hardly a cause for celebration although it does mean that the UK economy is heading in the right direction.

"While inflation is down, it is not out, and today’s good news is unlikely to push the MPC to cut interest rates tomorrow. Although we forecast that inflation will remain flat for the next few months, as we head into the winter a rise in energy prices could cause it to spike again. At the same time inflationary pressures in the services sector remain high. In addition, it is highly unlikely that the MPC will vote for a cut in interest rates during an election campaign (although there is no rule against individual MPC members voting to do so), wage growth remains strong at above 6%, and ongoing geopolitical uncertainty will weigh on the minds of the committee members.

"However, the odds are getting shorter for an interest rate cut on 1 August as the Bank of England looks to follow in the footsteps of the ECB, who cut rates for the first time in five years earlier this month.”

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