The Office for Budget Responsibility says inflation is likely to fall to 2% in the second quarter of this year. We expect movement in this direction next week. But the Bank of England says that after this, inflation is likely to rise again for the rest of the year.

The market expects the Bank of England to cut rates in June and to end the year at 4.2%.

Inflation figures for February will be released on 20 March, and the MPC will reveal its rate decision on 21 March

Susannah Streeter, head of money and markets, Hargreaves Lansdown:

”We’re on a downwards escalator, with another drop in inflation expected, and an accelerated move lower forecast for the months to come. But Bank of England policymakers are still set to hold their position, and grip on to higher interest rates.  They will want more evidence that wage growth will ramp down further before they budge and bring in a rate cut.

The Office of Budget Responsibility, the government’s independent forecaster, reckons inflation will hit the Bank’s 2% target this quarter. However, this could be a short-lived dip, and prices could take off again. Potentially inflationary pressures ahead include the ongoing fight for talent, higher shipping costs due to Red Sea disruption, and the increase in the minimum wage and business rates.

Increasing consumer and company optimism could see spending ramp up, potentially putting upwards pressure on prices. So, the name of the game will still be caution in the months ahead. Although a June cut is being pencilled in, a reduction in rates in August may be more likely, when the Bank also publishes the summer monetary policy report. Of course, the reticence over reducing rates sooner, given lacklustre growth, does mean that inflation could dip below target and that the economy will take longer to get going again, but for now it’s a risk that policymakers seem willing to take.”

Source: Property Notify