Governor Bailey is likely to be the happiest man in the Square Mile this morning, after the May inflation figures showed headline CPI returning to the Bank of England's 2% target for the first time since mid-2021, in a fall that continues to be driven largely by lower consumer energy prices, in addition to a significant drag stemming from base effects.
Services inflation, however, is likely to continue to give the MPC's hawks some cause for concern, having risen 5.7% YoY in May, above both market expectations, and the Bank's own 5.26% YoY forecast.
Instead, the first 25bp cut still seems most likely to come in August, in conjunction with the Bank's updated economic forecasts, though such a cut may well prove to be a split decision among MPC members, with one or two of the external hawks likely still concerned about inflation persistence, by virtue of the still-tight labour market, and stubbornly high services inflation.
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