Interest Rates to stay high despite this week’s good inflation news

Interest Rates to stay high despite this week’s good inflation news


Todays other news


Interest rates are expected to stay high despite good inflation news likely to be announced this week.

The Office for Budget Responsibility and Bank of England expect inflation to fall to 2% in the second quarter, and Wednesday’s official inflation figure is set to be well in that direction.

But experts say the market expects the Bank of England not to cut rates before June.

Sarah Coles, head of personal finance at business consultancy Hargreaves Lansdown, says: “Like a helium balloon trapped in the rafters of a village hall, inflation is gradually becoming less evident as time goes on.

“All the official forecasts put inflation at 2% within the next couple of months, and there’s every sign that March’s figure [out on Wednesday] will move some distance in that direction. 

“In many cases, this will be sky-high inflation from a year earlier dropping out of the figures. It means we’re unlikely to see an enormous number of price cuts, although there will be some items in the food basket which should be cheaper than a year earlier, and more good news for big consumers of dairy products. 

“The official forecasters disagree exactly where inflation will head after hitting 2% – because the Bank of England thinks it’ll head marginally north from there, while the Office for Budget Responsibility expects it to stay put around 2% for the remainder of the year. 

“However, there are still some inflationary forces at work, including geo-political tensions, which have been pushing the oil price up and adding to supply chain costs. 

“At the same time, rising consumer and company optimism could see spending ramp up, potentially putting upwards pressure on prices. Inflation has been surprising on the upside globally in recent months, so if inflation comes in ahead of forecasts, that wouldn’t be a bolt from the blue. 

“With this in mind, it’s no surprise that the market expects the Bank of England to sit on its hands at the next MPC meeting, and not to cut rates until June at the earliest.”

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