Summer Interest Rate Cut Still in Play
22 May 2024
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In the Media
Christopher Snowdon writes for ConservativeHome
21 May 2024
Government and Institutions
IEA research referenced in Thomson Reuters
23 May 2024
Economic Theory
25 June 2024
Commenting on news that the inflation rate fell to 2.3% in April, its lowest level since July 2021, Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs, said:
“The fall in UK inflation from 3.2% in March to 2.3% in April was slightly smaller than expected, but still another big step in the right direction.
“Admittedly, the ‘core’ rate excluding food and energy, at 3.9%, was still nearly twice the MPC’s 2% target for headline inflation. Services inflation remained high, at 5.9%.
“Nonetheless, this should not prevent the Bank of England from cutting rates in the summer. April was always going to be a tricky month as wages and other costs which are indexed to inflation caught up with the previous increases in the CPI or RPI. The unusually large hike in the National Living Wage took effect last month too.
“However, these are lagging indicators and policy should be forward-looking. Monetary growth has now settled at rates consistent with low and stable inflation, and there are plenty of signs that the labour market is cooling. Energy and food inflation also have further to fall.
“Indeed, the first interest rate cut could still come in June. The MPC will then have another set of inflation and labour data and more evidence on the latest pay settlements. If not June, then rates should be cut in August. Any further delay would risk tipping the economy back into an unnecessary recession.”
ENDS
Notes to Editors
Contact: media@iea.org.uk / 07763 365520
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
“The fall in UK inflation from 3.2% in March to 2.3% in April was slightly smaller than expected, but still another big step in the right direction.
“Admittedly, the ‘core’ rate excluding food and energy, at 3.9%, was still nearly twice the MPC’s 2% target for headline inflation. Services inflation remained high, at 5.9%.
“Nonetheless, this should not prevent the Bank of England from cutting rates in the summer. April was always going to be a tricky month as wages and other costs which are indexed to inflation caught up with the previous increases in the CPI or RPI. The unusually large hike in the National Living Wage took effect last month too.
“However, these are lagging indicators and policy should be forward-looking. Monetary growth has now settled at rates consistent with low and stable inflation, and there are plenty of signs that the labour market is cooling. Energy and food inflation also have further to fall.
“Indeed, the first interest rate cut could still come in June. The MPC will then have another set of inflation and labour data and more evidence on the latest pay settlements. If not June, then rates should be cut in August. Any further delay would risk tipping the economy back into an unnecessary recession.”
ENDS
Notes to Editors
Contact: media@iea.org.uk / 07763 365520
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
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