IoD press release Sharper than expected rise in inflation complicates path for rate cuts

“Inflation has risen sharply in April, a touch more than expected, and driven up by the rise in the Ofgem price cap, changes in other regulated prices (like water bills) and potentially some passthrough to prices following the significant increase in employment costs from the Autumn Budget.

“On balance, inflationary pressures are diminishing due to a combination of weak confidence, heightened uncertainty, lower energy prices, a softening labour market and the appreciation of sterling. Yet the Bank of England remains concerned about persistently high services inflation, along with the rise in expectations for inflation amongst households and businesses which have the potential to influence price and wage setting behaviour. This jump in inflation is not helpful against that backdrop. Whilst we should still see more interest rate cuts this year, today’s data is a timely reminder that significant cuts are not baked in, despite the shock to confidence this year from tariffs.”