It seems incredible, yet true. Consumer price inflation (CPI) fell to just 2.3 percent in April, a sharp drop from 3.2 percent in March. It’s now within a whisker of the BoE’s target. This is the first time since July 2021 that Governor Andrew Bailey won’t have to pen a letter to the Chancellor explaining why inflation is so high and what he plans to do about it.
We should all celebrate this month’s huge drop. Energy prices are now falling rather than simply rising at a slower rate, with Ofgem cutting the energy price cap cut by 12 percent from April 1.
Food prices rose just 2.9 percent.
Households are a little better off, even if it doesn’t always feel like it. Wages are still rising at six percent a year, comfortably above CPI.
From April 1, the government’s National Living Wage increased by 9.8 percent, giving the lowest earners a huge real terms lift.
Last month, the state pension triple lock jumped by 8.5 percent, a boon for 12.5million retirees. That’s also way above inflation. Like I said, brilliant news.
Better still, Chancellor Jeremy Hunt’s double National Insurance cut is now feeding through to the pay packets of 27 million workers.
We may even get more tax cuts, ahead of the general election.
Yet all this good news may deter the BoE’s monetary policy committee (MPC) from cutting base rates at its next meeting on June 20, in a blow for consumers and businesses, but especially mortgage borrowers.
What’s it playing at?
Inflation was expected to fall even faster in April, with Trading Economics predicting a figure of 2.1 percent.
That’s neither here nor there, you might think, but the MPC sees things differently.
Even with CPI almost back to target, it still fears we may suffer a second wave of inflation. Two figures worry it.
The first is core inflation, which strips out volatile food and energy prices. This came in higher than it would like at 3.9 percent, against 4.2 percent in March.
The second is services inflation, which is even higher at 5.9 percent.
The MPC fears a rate cut will fan the dying inflationary embers and drive wages back up.
It’s been grumbling for ages that we’re getting paid too much, despite earnings stagnating since 2008.
So if you’re wondering why your mortgage won’t fall, it’s because you’re getting paid too much. According to the BoE, that is.
We were all hoping for a rate cut in June, but now we may have to hang on until August.
The decision is in the balance, but many people will explode if the MPC sits on its hands once again. That last time inflation was at this level, base rate was just 0.5 percent.
The BoE has made a string of mistakes over the last few years, while refusing to learn from them. Why should we trust its judgement this time?
The cost-of-living crisis isn’t over yet. Even when it is, the damage will take time to repair. Many have run up huge debts simply to pay their food and energy bills.
Prime Minister Rishi Sunak’s plan is working, but not fast enough. The Boe needs to give it a helping hand, but it probably won’t. Not in June, anyway.
