Inflation has fallen from four percent in January but it’s not falling as fast as the nation – or Rishi Sunak – would like. The PM desperately needs voters to feel better off to avoid humiliation at this year’s general election, but today’s move isn’t quite the turning point he would have hoped for.
It will help, though, allowing Chancellor Jeremy Hunt to claim that “the plan is working”, a message he will keep hammering home between now and election day, whenever that is.
The message may start to sink in if we get a bigger drop over the next couple of months, as we almost certainly will.
The really good news today is the big slowdown in food inflation, which has fallen to the lowest level since January 2022.
Better still, staples like bread and cereals are falling fastest, in a boost for pensioners and those on lower incomes who spend more of their money on essentials.
Now we just need to be sure that retailers pass on the savings to hard-pressed customers.
Petrol prices rose slightly but in a further boost, household energy bills are set to fall by 12 percent in less than two weeks.
Economists at ING Bank now reckon that headline inflation should dip below two percent in either April or May.
That’s obviously great news, although not as good news as it should be, unless the Bank of England squanders this brilliant opportunity to get the UK moving again.
Which judging by recent experience with the accident-prone BoE, it probably will.
While inflation has fallen to less than a third of its peak reading of 11.1 percent in October 2002, it remains above the Bank of England’s two percent target. So we cannot expect an early interest rate cut.
That’s a huge shame, as a growing body of experts reckon the BoE should be much faster to cut rates.
US investment bank Citi said only yesterday that the BoE’s governor Andrew Bailey has already “left it too late” to start cutting.
That’s my view, too, for what it’s worth. Bailey was behind the curve when interest rate inflation started to take off in 2021, famously claiming it was “transitory”.
Now he’s making the opposite mistake by failing to ease monetary policy fast enough, arguing that inflation is far from beaten.
Today’s figure will give the BoE’s rate-setting monetary policy committee (MPC) the excuse it needs to do nothing at tomorrow’s meeting.
There’s a fair chance that two of its nine members will actually vote to INCREASE rates from today’s 5.25 percent. as they did at the last two meetings.
That’s how out of touch the BoE is.
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It needs to get a grip, because millions are suffering and businesses could go under unless borrowing costs are cut soon.
With council tax bills set to rise in April, and energy debt levels at record highs, many households will still struggle to meet essential costs.
Despite Chancellor Jeremy Hunt’s recent twin National Insurance reductions, the tax burden is still at a 70-year high, as the Treasury swallows more of what people earn than ever. It is likely to rise even higher if labour takes power.
Worse, the BoE’s high interest rate policy isn’t even working on its own terms. It does little or nothing to actually reduce inflation, which has been driven by the cost of global food and energy prices. And that’s got nothing to do with interest rates.
We need that first rate cut tomorrow. Sadly, we’re unlikely to get it.
