[Economics] Britain’s inflation rate could be about to drop below the Bank of England’s 2% target

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LONDON — U.K. inflation could be about to hit a major milestone, with some forecasting that a sharp fall in the April print will take the headline rate below the Bank of England’s 2% target. That would represent a plunge from the current level of 3.2% and could “make or break” a June interest rate cut, economists say. The decline will largely be driven by the energy market, after the regulator-set cap on household electricity and gas bills came down by 12% at the start of April. A reading below 2% on Wednesday would be the lowest headline inflation rate since April 2021, and a cooling from the peak of 11.1% hit in October 2022 — when U.K. price rises were among the most severe of all developed economies. The country has been hit by a range of inflationary pressures, including a persistently tight labor market, weakness in the currency increasing the cost of imports, and steeper rises in gas bills than were seen elsewhere. ‘Momentous’ Ashley Webb, U.K. economist at Capital Economics, said that if the headline rate does fall below 2% in April, as he expects, it would be “momentous.” “This will be crucial in determining whether the first interest rate cut from 5.25% will happen in June (as we expect) or in August. What’s more important is what happens next. We think inflation will fall further, perhaps even to 1.0% later this year,” Webb said in a Friday note. A Reuters poll of economists puts the headline estimate slightly higher, at 2.1%. The Bank of England held interest rates steady at its May meeting, as policymakers sent out signals they were preparing for a rate cut in the summer but declined to zero in on June — as those at the European Central Bank have done. BOE Governor Andrew Bailey said the latest figures were “encouraging,” but that releases ahead of its June 20 meeting, including two consumer price index prints and two sets of wage growth data, would be crucial.

https://www.cnbc.com/2024/05/21/uk-inflation-could-be-about-to-drop-below-the-2percent-target.html