Saturday, December 21, 2024

The painful price rise that may cost Britain another interest rate cut

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The Bank of England cut interest rates for the first time in four years last month, and markets still expect two more cuts before the end of the year to 4.5pc.

However, Wednesday’s data suggests the path to sustained 2pc inflation remains some distance away, and is likely to be complicated by plans to keep raising the minimum wage, including at much faster rates for younger workers.

Investors have trimmed back bets on an immediate rate cut to just 15pc.

Darren Jones, Chief Secretary to the Treasury, said: “Years of sky-high inflation have taken their toll; and prices are still much higher than four years ago. So, while more manageable inflation is welcome, we know that millions of families across Britain are struggling.”

The Bank already expects inflation to climb in the second half of the year, hitting 2.7pc in the final quarter of 2024.

Andrew Wishart, senior economist at Berenberg Bank, noted that a 10pc rise in the energy price cap to £1,717 per year for a typical household from October would put renewed pressure on households after a year of falling energy bills. 

“The large [downward] drag on inflation from energy prices will wane over the remainder of the year,” he said.

“Despite some evidence of labour market cooling, we expect the Bank to keep the rate on hold at 5pc. That would make it an outlier after the ECB cut last week and the Fed lowers rates on Wednesday evening.”

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