The governor of the Bank of England has indicated that the UK is still on track for an interest rate cut, as official numbers show a further slowing in the rate of price growth in the economy.
Bank of England Anticipates Interest Rate Cut as Inflation Hits 2.5-Year Low
Andrew Bailey spoke just hours before the Office for National Statistics (ONS) disclosed that the consumer prices index (CPI) measure of inflation fell to 3.2% in the year to March, the lowest level in two and a half years.
That was lower than the 3.4% figure recorded the previous month, but slightly more than economists expected.
ONS chief economist Grant Fitzner said of the adjustments seen last month: “Once again, food prices were the main reason for the fall, with prices rising by less than we saw a year ago.
“Similarly to last month, we saw a partial offset from rising fuel prices.”
A reduced inflation rate is good news for long-suffering households, which are witnessing an increase in purchasing power as wages rise faster than prices.
The Bank of England is expected to provide an additional boost in the coming months as energy-driven inflation continues to fall, with a strong drop in CPI this month largely tipped to bring the key measure of inflation closer to the Bank's 2% objective.
Some economists believe the Bank will begin withdrawing its inflation-fighting medicine in June.
Bank of England Contemplates Interest Rate Cut Amidst Economic Disinflation
An interest rate drop from the present 5.25% level would reduce numerous borrowing costs that have increased the strain on family finances, such as higher mortgage rates.
Mr. Bailey declared to an International Monetary Fund event in Washington:
“In the UK we're disinflating at what I call full employment.
“I see, you know, strong evidence now that that process is working its way through.
“Our judgement with interest rates is, 'how much do we need to see now to be confident of the [disinflation] process'.”
Speculation Mounts as Bank of England Considers Delaying Rate Cuts
There is a growing sense that the Bank may postpone rate cuts.
However, there is growing concern that the Bank may have to postpone a rate cut.
According to LSEG data, the majority of financial market players forecast the first rate drop in August or September.
The concerns include the threat posed by growing oil prices as Middle Eastern conflicts continue to deepen, as well as the fact that UK pay growth is now nearly double the inflation rate. Another has emerged from the United States.
There, the chief of its central bank has cautioned that the chances of an impending interest rate decrease have diminished as the world's largest economy heats up.