A welcome and impatiently awaited fall in inflation arrived as expected this week, to the Bank of England’s (BoE) relief. It’s an important landing stage in the journey back to low inflation, but we’re not off the hook. The fall – the result of high energy prices falling out of the annual calculation – was much less than the near-two points slide the BoE had hoped for and increases the likelihood of an interest rate rise next month.
At 8.7 per cent, inflation is still painfully high. There is practically zero chance the BoE will ease up on the power of its chief weapon in this fight any time soon. Doing so risks losing the whip hand and it can’t even be certain it has a firm grip on that.
The fading chance of a pause in tightening will be unwelcome news for borrowers, including the government – public sector net borrowing last month was £12bn higher than in April a year ago, in part due to higher debt interest. And while recession had been largely ruled out by everyone, including the IMF, there is broad-based agreement that growth will be subdued for the next couple of years.