The upcoming inflation data is much anticipated and will show whether inflation is aligning with the Bank of England’s target rate.
People with mortgages, those looking to buy homes, financial experts, and others with loans or savings are eager for clues on when the UK might see reduced interest rates, potentially even by next month.
Ben Broadbent, Deputy Governor for monetary policy at the Bank, mentioned that rates could be cut later in the summer if economic projections hold true and there’s a notable drop in inflation.
Broadbent indicated that the Bank’s nine-member monetary policy committee needs to consider how changes in domestic prices and wages will influence inflation over two years.
Capital Economics predicts that inflation will dip below the Bank’s 2% goal based on April’s data released tomorrow, and might fall under 1% by year-end.
“This supports our prediction that interest rates will go down from 5.25% to 3% next year, instead of the 3.75% that the market is expecting,” said the firm.
Other experts, however, believe that inflation could rise above 3% again by year-end due to high service costs and salary increments in financial and business services, which could lead to higher prices.
Broadbent explained that the committee’s opinion on inflation varies, which is to be expected due to the infrequency of such economic situations and the uncertainties they entail.
“The committee will adjust its approach based on new data and forecasts. If trends align with these forecasts, suggesting a need for less restrictive policy, a rate reduction over the summer is possible,” he added.
Earlier in the month, the committee decided with a 7-2 majority to maintain the current rate of 5.25%, a 16-year peak, with Broadbent among the majority.
Currently, financial markets predict a 57% chance of a drop to 5% in the upcoming June meeting, and they almost fully expect a cut by August.
