Inflation has fallen. Is it enough for an interest rate cut?

Welcome to Citrus Bites, our monthly video covering the latest economic news for investors. This month, This month Richard Harris dives into the question on everyone’s mind: when will the Bank of England lower interest rates? While the latest economic data shows inflation is down (good news!), there are reasons to believe a rate cut in June may now be less likely.

Sticky Services Inflation

While headline inflation looks good, core inflation and services inflation remain stubbornly high. This is concerning because services make up a large part of the UK economy. High service inflation suggests consumers still have strong spending power, potentially leading to the Bank of England keeping rates steady.

Wage Growth a Key Factor

Rising wages are a major driver of service inflation. The labor market shows signs of cooling with fewer vacancies, but unemployment remains low. This ongoing pressure on wages could keep the Bank of England from cutting rates.

Rate Cut Probability Drops

Based on the latest data, investors now see a lower chance of a Bank of England rate cut in June. Reuters reports the probability has dropped from 50% to 15%.

June Data and Global Events

There’s still time! More inflation data comes out on June 19th, which could influence the Bank of England’s decision. Additionally, global factors like elections and geopolitical tensions can impact economic forecasts.

Stay Tuned for Updates

The next four weeks are crucial. Richard will keep you updated on the European Central Bank meeting on June 6th, the Federal Reserve meeting, and finally, the Bank of England meeting on June 20th. These meetings will set the stage for the future of interest rates.

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