UK Inflation Weakens Case for June Rate Cut

Economists welcome fall in inflation to 2.3% but argue the Bank of England will be less likely to cut interest rates in June

James Gard 22 May, 2024 | 9:46AM
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Bank of England building

UK inflation moved closer to the 2% target in April, but sticky services inflation suggests the Bank of England may delay the expected June rate cut.

While the 2.3% figure was a significant fall from March's 3.2%, market forecasts had expected CPI to come in at 2.1%. And services inflation came in at 5.9% for April, down from 6% in March, according to official figures by the Office for National Statistics (ONS).

Inflation has been on a downward trend since the 11.1% peak in CPI in October 2022. But the Bank of England has yet to cut interest rates, having raised them to a 15-year high of 5.25% in August 2023. At the May meeting, policymakers indicated that an interest rate cut in June is a possibility. Governor Andrew Bailey said a June interest rate cut was being considered but not a 'fait accompli'.

A week ago likelihood of an interest rate cut by the Bank of England on June was around 60%, as measure by overnight index swaps, but that has fallen sharply after the release of April's inflation data.

Bank of England May Not Cut Rates in June

What do today’s figures mean for the next Bank of England interest rate meeting? 

Tomasz Wieladek, chief European economist at T. Rowe Price, says that another interest rate rise can’t be ruled out.

“Although there is some evidence services inflation is falling gradually, the data today will likely prevent a cut in June. The MPC has repeatedly said services inflation will be an important indicator in understanding if domestically generated inflation is coming down in sustainable manner. The MPC wants to cut rates based on the forecast released in May, but it is still data dependent. The forecast has been revised upwards several times now and the data still surprised the MPC.

“For now, the MPC will try to wait until services inflation comes down, but if it does not, the MPC may have to hike again at some point. The data today clearly show markets were too optimistic about a June cut and remain too optimistic about BoE cuts this year.’

Inflation Not Falling Fast Enough

Services sector inflation remains a worry, argues Neil Birrell, chief investment officer at Premier Miton Investors:

“UK inflation is following the trend elsewhere and is proving to be more resilient than hoped. It is not getting back to target as fast as the Bank of England would like, which will probably delay the first interest rate cut. The service sector has proved to be the sticking point and it will remain the bank’s focus over the next month or two, ahead of a potential rate cut in the summer.”

Zara Nokes, global market analyst at J.P. Morgan Asset Management (JPMAM) now thinks a June cut is less likely:

“While today’s meaningful decline is welcome news, the Bank of England will be disappointed by the 0.2% pt upside surprise in the headline figure. Although this was mainly a result of an upswing in motor fuel prices, concerns will remain around the stickiness in some underlying components. Critically for the policymakers at Threadneedle Street, services inflation – a useful gauge of inflation persistence – came in a lot hotter than its latest projections.

“Given the recent divergence in opinions across the Committee, the upside surprise in services inflation may dent the Bank’s confidence that entrenched inflationary pressures are receding. While the Bank will still be able to take its foot off the brake this summer, a June cut now looks less likely. In our view a cut in June would be premature; if the economy were slowing we would expect core inflation to follow headline lower, but recent data has shown activity reaccelerating.”


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James Gard

James Gard  is senior editor for


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