But the April CPI inflation data make June very unlikely. While the headline rate ticked down to 2.3 per cent – its slowest pace since July 2021 – from 3.2 per cent in March, it was above both the MPC’s and analysts’ expectations of 2.1 per cent.
Core inflation also ticked down, but at 3.9 per cent, it again was well above the expected 3.6 per cent.
The stickiness of services CPI inflation, which ticked down by just 0.1 pp to 5.9 per cent from 6 per cent in March, will be most concerning to the MPC given that the committee are currently placing more weight on this measure to guide them on the persistence of the second-round effects on wages and domestic prices, given the inadequacies of the labour market data.
While hefty increases in some services prices were anticipated, such as in mobile phone bills and rents, upside surprises elsewhere were broad based.
The biggest contribution was from restaurants and hotels CPI, which added 0.85pp to the headline rate.
Within that, accommodation services rose by 0.9 per cent on the month, after jumping by 3.8 per cent in March, leaving prices up 4.8 per cent across the two months. That is compared to 3 per cent over the same period in 2023.
Recreation and cultural services CPI inflation was also strong, with prices increasing by 3.6 per cent month-to-month in April and adding 0.62pp to the headline rate.
These sectors are particularly sensitive to changes in the national living wage, so some upward pressure likely stemmed from the near 10 per cent increase in the national living wage last month.
The question is whether further lagged price hikes are likely in May, as higher labour costs are passed on to consumers – we think the answer is probably yes, though to a lesser degree than in April.
June now ruled out, but August still on the cards
On the back of the latest CPI data, markets now do not expect the first cut until November, with roughly an 80 per cent chance the BoE moves in September.
The chances of an August hike look less likely, with investors pricing in under a 50 per cent probability.
The MPC have widely signalled the first cut will come this summer; we doubt they will wait that long.
Why? Well first, the vote split has already shifted in favour of the doves, with Dave Ramsden joining Swati Dhingra in voting for an immediate reduction in May and the other seven voting to keep bank rate unchanged.
Remember that just two meetings ago, both Jonathan Haskel and Catherine Mann were still voting for further hikes; the balance has moved decisively.
Admittedly, the BoE did highlight a “range of views” about the risks to the inflation outlook and what would constitute sufficient evidence to shift confidence in a disinflationary outlook, suggesting some of the remaining seven members are to closer switching than others.
