14 August 2024
If you are covering the latest UK inflation data from the Office for National Statistics, please find below a comment from Richard Carter, head of fixed interest research at Quilter Cheviot:
“Today’s inflation data is a reminder for the Bank of England of the difficult task it has on its hands as inflation has risen again above the 2% target to 2.2% in July. One data point will not cause panic to spread, and much of this rise was expected due to favourable comparisons falling out of the figures. The good news is that these figures are slightly better than the market anticipated, which the BoE will be very pleased to see.
“It continues to be things such as energy costs that are driving inflation as this now begins to fall less than last year. It is such elements of this data, however, that will keep any interest rate cuts tempered for now, with the BoE opting for a gradual decline in rates to avoid inflation taking root once more and spiralling. Indeed, the BoE was insistent in its rate cut earlier this month that monetary policy will have to remain restrictive in order to keep inflation subdued at more palatable levels.
“The problem the BoE has is that services inflation remains elevated at 5.2%, and with wage growth remaining well above the headline rate of inflation, there are many risks out there should the BoE move too quickly in cutting rates. Indeed, core CPI stands at 3.3% now, although it is falling gradually. As such, we would expect November to be the earliest date for the next rate cut, unless we see a significant deterioration of the economy in the meantime. Inflation is a difficult thing to predict and does not simply rise or fall in a linear fashion, making it tough to manage. For now, the BoE will be content with where inflation is heading, but any further, unexpected rises, will start to ring alarm bells just as consumers and businesses crave further rate cuts.”
