17 July 2024
If you are covering the latest UK inflation figures from the Office for National Statistics, please find below a comment from Richard Carter, head of fixed interest research at Quilter Cheviot:
“In what are the new Labour government’s first set of figures, everyone on the front benches will be breathing a sigh of relief that inflation has stuck rigidly to the 2% target. With two consecutive months of at target inflation now reported, the Bank of England should now have enough room to enact its first rate cut in over four years. This will delight Chancellor Rachel Reeves and give a fresh impetus to the economic plan she unveiled last week.
“The good news is that pressures are easing, especially for consumers. Grocery inflation is now at its lowest level in almost three years, and the economic picture is improving. We have also had events come and go last month, specifically Taylor Swift’s UK leg of her world tour, that will have added some volatility to the overall inflation figure for June. With these stripped out of future figures, it is hoped that even if we do get another uptick in inflation in the coming months, the BoE can shake it off quickly and prevent any reassessment of the optimal ceiling for interest rates, and any chance of rates having to be put back up.
“What happens with core and services inflation will be crucial to watch and will give an indication of just how quickly the Bank of England can act when it comes to normalising monetary policy. Both readings remain much more elevated than the BoE would like and are proving stubborn to bring back down to that 2% level, even if the overall measure of CPI has come down sufficiently. It is these two readings that will prevent the BoE from fully releasing the handbrake and allow the economy to pick up speed.
“As such, any interest rate cut that is delivered in August will likely be the first of a gradual path down to ensure mistakes of the 1970s are not repeated and inflation is allowed to take root once again.”
