UK Inflation: What to Expect from May’s Data

This
data
release
is
also
significant
because
it’s
the
last
inflation
data
before
the
general
election
on
July
4.
The
Conservative
party
is
campaigning
on
this
issue,
claiming
credit
for
bringing
inflation
back
to
target.

If
inflation
does
fall
back
to
2%,

this
will
pile
pressure
on
the
Bank
of
England
to
cut
rates
from
their
current
level
of
5.25%.
While
this
looks
unlikely
at
the
June
20
meeting,
it
can’t
be
ruled
out
completely.

Still,
the
fall
in
inflation
back
to
2%
will
be
gratifying
for
the
Bank,
which
hiked
rates
from
0.1%
in
December
2021
to
5.25%
by
August
2023,
as
it
shows
that
drastic
monetary
tightening
worked,
eventually.
In
this
period
central
banks
slammed
on
the
brakes
to
tackle
a
surge
in
inflation
that
hadn’t
been
seen
for
decades.

As
we
reach
the
half-way
stage
of
2024,
inflation
is
proving
persistent
in
the
US
and
eurozone.
The
European
Central
Bank
recently
raised
its
inflation
forecasts
for
this
year,
while
the
Federal
Reserve
has
just
adjusted
its
forecasts
for
core
inflation
higher
for
the
end
of
this
year.

Prices
Aren’t
Falling,
They’re
Just
Rising
Less
Quickly

In
the
UK,
April
CPI
came
in
at
2.3%,
rather
than
the
forecast
2.1%,
which
illustrates
the
uneven
path
back
to
target.
Services
inflation
was
still
at
5.9%
in
April,
and
this
is
an
area
of
concern
for
the
Bank
of
England
as
it
considers
interest
rate
cuts.

In
April,
weaker
energy
prices
drove
the
fall
in
inflation
from
2.6%
to
2.3%.

Rises
in
food
and
drink
prices

are
easing
from
2023
levels,
but
basic
foodstuffs
are
significantly
higher
than
before
the
global
inflation
surge.

Core
CPI,
which
excludes
more
volatile
energy
and
food
prices,
fell
to
3.9%
in
April,
from
4.2%
in
March.
FactSet
consensus
has
UK
core
CPI
dropping
to
3.5%
in
May.
Policymakers
are
more
concerned
about
core
CPI
because
it’s
falling
more
slowly
than
the
headline
rate
of
inflation
and
is
also
higher
than
that
measure. 

For
UK
politicians
pounding
the
streets
this
month,

disinflation
is
a
hard
sell
to
voters
because
prices
across
the
board
are
still
elevated. 

“When
inflation
eases,
it
can
be
hard
to
spot
the
improvement.
Things
are
just
getting
worse
slightly
more
slowly
than
before.
You’re
also
living
with
all
the
damage
done
earlier,”
Sarah
Coles,
head
of
personal
finance,
Hargreaves
Lansdown,
said
in
a
note.

What
about
inflation
for
the
rest
of
2024?
According
to
the
Bank
of
England’s
latest
forecasts
from
May
2024,
inflation
is
expected
to
fall
to
the
2%
target,
go
below
that,
before
rising
again
to
2.5%.
The
Bank
cites
the
“unwinding
of
energy-related
base
effects”,
which
means
that
favourable
comparisons
with
2023
will
start
to
drop
out
of
the
figures. 

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