Despite the return to target, strong underlying price pressures all but rule out a pre-election interest rate cut by the Bank of England
British inflation returned to its 2 per cent target for the first time in nearly three years in May, but strong underlying price pressures all but rule out a pre-election interest rate cut.
Sterling rose modestly against the dollar and the euro after the data, but British government bonds underperformed as investors bet the BoE would delay following the lead of the European Central Bank, which cut rates earlier this month. The fall has been sharper than in the euro zone or the United States, where consumer price inflation in May was 2.6 per cent and 3.3 per cent respectively, belying concerns a year ago that British inflation was proving unusually sticky.
Sunak said that the drop in inflation since he took over from his Conservative predecessor Liz Truss – whose fiscal policy triggered a surge in government borrowing costs – was evidence that his economic policies were working.Labour’s Rachel Reeves, who looks set to be Britain’s next finance minister after the election, said reelecting the Conservatives would bring “five more years of chaos.”
Most economists in a Reuters poll last week thought the central bank would start to cut rates in August from their 16-year high of 5.25 per cent, but financial markets see only a 30 per cent chance of an August rate cut and think a first move is more likely in September or November.
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