UK inflation has held steady at 2.4%, despite the sharpest rise in fuel prices since 2011 and some upward pressure from air fares (the notorious 'Easter effect'), notes James Smith, Developed Markets Economist at ING.
“Were it not for energy costs though, we suspect inflation would be falling further. Prices have mostly adjusted to the pound’s post-Brexit plunge, and we expect core CPI to fall back to the 2% target next month, and we think it will stay there or just below for at least the next few months.”
“On the face of it, the fact that core inflation is now back at target takes some pressure off the Bank of England to raise rates further – though when it comes to judging underlying inflationary pressures, it’s wage growth that policymakers have their eye on.”
“We still think an August rate rise is more likely than not, but this does rely on the economy showing more convincing signs of recovery after the weak first quarter.”
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