British inflation could move closer to the Bank of England’s 2 percent target when the latest figures from the Office for National Statistics (ONS) are published on Wednesday.
The consumer price index (CPI) fell to 3.2 percent in March from a year earlier, and forecasters polled by Reuters expect inflation to fall to 2.1 percent in April.
Pantheon Economics forecasts a slightly lower figure of 2 percent and Capital Economics thinks it could fall even further to 1.9 percent. The Bank of England (BoE)’s own forecast is 2.1 percent.
Ashley Webb, UK economist at Capital Economics, said: “The release of April’s CPI inflation data next Wednesday could prove significant if we are correct in thinking that inflation will rise from 3.2 for the first time in three years % fell below the target of 2.0% in March.” years.
“This will determine whether the first rate cut of 5.25% will occur in June (as we expect) or in August. What’s more important is what happens next. We expect inflation to fall further, perhaps even to 1.0% later this year.”
The expected lower figures, to be released on Wednesday, will add further pressure on the Bank of England to cut interest rates from their 16-year high of 5.25 percent.
Central bank policymakers have raised interest rates over the past two years to combat inflation and have set a goal of bringing them back down to 2 percent after peaking at 11.1 percent in 2022 .
The expected fall in inflation will come just days after BoE deputy governor Ben Broadbent suggested that UK interest rates could be cut as early as this summer.
In a speech Monday morning, he said it was “possible” that borrowing costs could fall this summer if the economy performed as expected.
The economist said the bank’s nine-member MPC, which votes on possible rate hikes, must assess how the potential persistence in wage and services inflation evolves.
He added: “Regardless of the preconceptions of its individual members, the MPC will continue to learn from the data coming in, and if things continue to evolve in line with its forecasts – forecasts that suggest that policy will need to become less restrictive at some point – then “Is it possible that the key interest rate will be cut at some point over the summer.”
Earlier this month, Mr Broadbent also voted to keep interest rates at 5.25 per cent, with a 7-2 vote for no change.
The financial markets have priced in a rate cut by August.
Data released by Kantar on Tuesday suggests that food price inflation has slowed to its lowest level since October 2021.
According to analysts Kantar, supermarket prices are 2.4% higher than a year ago, falling for the 15th month in a row (down from 3.2% in April).
Food inflation is now just 0.8 percentage points above the 10-year average of 1.6 percent between 2012 and 2021, just before prices began rising.
Fraser McKevitt, head of retail and consumer intelligence at Kantar, said: “Food inflation is gradually returning to what we would consider more normal levels.”
“At an inflation rate of around 3%, we typically start to see significant changes in consumer behavior, with shoppers switching to cheaper items when the rate is above this limit, and vice versa when the rate falls.
“However, after nearly two and a half years of soaring prices, it may take a little longer for shoppers to shed the habits they have learned to cope with the cost of living crisis.”