Bank of England ‘unlikely' to cut interest rates as inflation pressure grows

The Bank of England is predicted to keep UK interest rates at 4.25% on Thursday amid rising food inflation and the threat of surging oil prices pushing up the cost of living.
Most economists think the Bank of England's Monetary Policy Committee (MPC) will opt to keep rates on hold when it meets on Thursday.
The MPC has voted to cut rates at every other meeting since it started easing borrowing costs last August, from a peak of 5.25%.
This has been possible while the rate of UK inflation has been steadily falling from the highs reached in 2023, at the peak of the cost-of-living crisis.
Interest rates are used as a tool to put a lid on unruly inflation, in line with the Bank's task of keeping the rate of Consumer Prices Index (CPI) at 2%.
However, rising food prices have been putting pressure on overall inflation recently, with the latest data from the Office for National Statistics (ONS) showing food and non-alcoholic drink prices rose by 4.4% in the year to May.
This was the highest level in more than a year, with items like ice cream, coffee, cheese and meat spiking last month.
Chocolate prices soared by nearly 18% annually, a record jump for the confectionery.
The overall CPI rate came in at 3.4% in May, slightly higher than the 3.3% rate most economists had been expecting.
Monica George Michail, associate economist for the National Institute of Economic and Social Research (Niesr) said the institute was forecasting inflation to remain above 3% for the rest of the year amid 'persistent wage growth and the inflationary effects from higher Government spending'.
'Additionally, the current tensions in the Middle East are causing greater economic uncertainty,' she said.
'We therefore expect the Bank of England to keep rates on hold this Thursday and implement just one further cut this year'.
Sandra Horsfield, an economist for Investec, said the Bank of England is likely to be encouraged by services inflation dropping to 4.7% in May, from 5.4% in April.
This could indicate that higher employer national insurance contributions, which rose in April, have not been passed onto consumers to the extent that policymakers had feared, she said.
But Ms Horsfield said 'other uncertainties remain, not least with respect to US tariffs and the indirect impact this will have on UK firms'.
'The risk to energy prices has clearly intensified and moved up the agenda given developments in the Middle East,' she said.
'It seems unlikely the MPC will want to change policy rates this week.
'But we think Wednesday's data keep another rate cut at the subsequent MPC meeting in August firmly on the table.'

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6 hours ago

• Telegraph

EU fantasies of toppling the dollar are totally delusional

It's a nice problem to have amid the Trump-inspired madness that grips today's foreign exchange markets. But it's a problem none the less. The Swiss franc keeps on appreciating, and there seems to be almost nothing the authorities can do to stop it. Increasingly alarmed by its trajectory, the Swiss National Bank last week cut its official policy rate back down to zero, and there is now talk of rates going negative again by summer's end. But to little effect. Switzerland's safe haven attributes have rarely been in such high demand. Rising geopolitical tensions have combined with growing loss of trust in the dollar as the bedrock of the global economy to send the franc soaring, almost regardless of whatever rate of interest it carries. Lest it be gold, there are few repositories of wealth thought more secure than Switzerland. Contrast that with the UK, where Bank Rate is still firmly stuck at 4.25pc with stubbornly persistent inflation to match. Thanks substantially to the lower import prices that the surging franc brings about, prices as a whole are going down not up; there is little or no cost of living crisis. This is great for consumers, not so much for Swiss industry, which has to match these deflating prices at home and abroad. But thus far at least, it's coped remarkably well. I've never bought the idea that a competitive economy needs a weak currency. Persistent devaluation has been the British way for decades now, and little good has it done either. At best, it's only smoothed the decline – a tranquiliser to avoid having to face up to the hard yards of painful structural adjustment. While the UK has grown poorer, the Swiss grow ever richer – living proof that a strong currency goes hand in hand with a competitive economy. The one is a reflection of the other. Bad, uncompetitive companies are quickly weeded out and dispensed with, while the disciplines of having to compete with cheaper foreign goods and services forces the survivors into imaginative innovation and productivity gain. You can, however, have too much of a good thing, and this is the unfortunate position that Switzerland now finds itself in. Broadly speaking, Switzerland produces in appreciating francs, but sells in equally fast depreciating dollars. There is only so far countervailing productivity improvement can take you. Theoretically, Donald Trump's tariff policies should make the dollar stronger, in that all other things being equal, they ought to reduce the size of the deficit. But it hasn't worked out that way. In practice, they've only further undermined international confidence in US economic management more widely. To most observers, it looks as if the White House is deliberately trying to tank the dollar. And on one level, it is; a depreciating dollar temporarily helps domestic producers by making imports more expensive. When combined with tariffs – effectively a sales tax on foreign producers – US industry gets a double boost. Trump wants the best of both worlds; he wants a weak dollar, but he also very much likes the dollar's commanding position in the global economy for the geopolitical power it bestows. Sadly for him, it's not clear he can have both. To support a weak dollar, he needs to make dollar assets less attractive to foreign investors. As Stephen Miran, the head of Trump's council of economic advisers, has suggested, this might be achieved by imposing a withholding tax on income generated by US assets, or by converting foreign holdings of US Treasuries into 100-year bonds. Trump's problem is that the less attractive the US makes itself to foreign investors, the less likely it is that the dollar can sustain its dominant reserve currency position. 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Even Trump must know that. Meanwhile, Europe is cutting fast – with the notable exception of the UK, where inflation remains a problem. Normally, America's higher interest rates relative to Europe would cause the dollar to strengthen, but the trust issue has provoked a very different response – a weaker dollar despite a widening interest rate gap. Christine Lagarde, the president of the European Central Bank, sees Trump's antics as an opportunity for a 'global euro moment'. It has long been the ambition of European policymakers to look the mighty dollar in the face, and eventually usurp its position in the international monetary system. This has always seemed fanciful. For all its grandstanding, the EU remains a disjointed confederation of fiscally sovereign and often deeply divided nations, with no centralised Treasury function to speak of, no banking union and no unified sovereign debt market. This makes its monetary union acutely vulnerable to existential crisis. Lagarde might think of herself as queen bee, but her powers and reach are remarkably limited. As long as this remains the case – and there is little sign of it changing – Lagarde's musings are just delusional nonsense. Where reserve managers have been diversifying away from the dollar, it has, moreover, tended to be into gold, not the euro. Indeed, gold recently overtook the euro as the biggest central bank reserve asset after the dollar. A rather more potent long term threat comes from China, whose central bank digital currency and the infrastructure being built around it are deliberately designed to provide an alternative to the dollar for trade and investment. Those who take umbrage at Trump's America can try China instead. Who's to say it's less reliable than a country that slaps record tariffs on some of its closest allies? Regrettably, Switzerland is just too small to act as a global reserve currency. As it is, it struggles to manage the inflows of international capital looking for safety amid the bedlam of today's world. Already, the Swiss National Bank balance sheet is swollen by its various currency interventions to a size considerably bigger than that of Switzerland's entire economy. It can surely go no further in printing Swiss francs to buy foreign assets. But as I say, it's a nice problem to have.

Daily Record

a day ago

• Daily Record

Take online 'PIP test' to see if DWP changes next year could affect your payments

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Glasgow Times

a day ago

• Glasgow Times

Bank of England boss not ‘convinced' of need for digital pound

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