IoD press release Strong wage growth and rising inflation leave MPC with little space to cut rates

“Today’s expected rise in inflation – the second in a row – largely reflects the technicality that energy prices are no longer falling as they were a year ago, as well as ongoing stickiness in services prices. Although services inflation has come in around the Bank of England’s expectations at 5.0%, it remains uncomfortably high. Meanwhile yesterday’s unexpectedly sharp rise in wage growth does not give hope that domestic inflationary pressures are well contained and moving in the right direction.

“The softening in private sector activity flagged in business surveys, reflecting tough trading conditions, low confidence and rising costs, may itself exert downward pressure on inflation over time. But how businesses respond to increases in employment costs, as well as how quickly government spending rises following the Budget, has a crucial bearing. Elevated global risks from conflicts, higher trade tariffs and the likelihood of a fiscal expansion in the US all present risks to the inflationary environment. These factors lend themselves to a watchful-hold in interest rates from the Bank of England tomorrow.”