Commenting on this morning’s latest ONS figures on inflation, Melanie Baker, Senior Economist at Royal London Asset Management said:
There was again little here to reassure the Bank of England – inflation remains well above target, core inflation is well above 2% and services inflation has risen quickly over the past year. Some measures of inflation expectations look elevated and the labour market still looks tight.
It is unlikely that we’ve seen the last rate rise this year. By raising interest rates, the Bank can cool demand to bring it down in line with supply. By acting and sounding serious about tackling high inflation, they can help lower inflation expectations. However, the Bank still aren’t sending as strong a message as they could with the last set of minutes sending an ambiguous message on their interest rate outlook.
In the meantime, these high rates of inflation continue to run faster than pay growth and the financial situation of many households will be worsening. High inflation, especially on essentials like food and energy, combined with the central bank rate hikes means the outlook for the consumer remains challenging. Consumer confidence and May retail sales data are out on Friday and are both expected to be weak.
The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.