“Encouraging data paints a favourable inflation outlook and put Bank in position to cut rates from the summer” says Yael Selfin, Chief Economist at KPMG UK.
“The overall outlook for inflation is promising. While there are several risks which could undo some of the progress made, including tightness in the labour market, the National Living Wage set to increase in April is not expected to reverse the gains. Meanwhile, continuing disruption in the Red Sea could lead to some resurgence in goods price inflation through higher transportation costs.
“The Bank of England could opt for a wait and see approach at the next meeting, particularly with risks still skewed to the upside. More data and further easing of underlying inflationary pressures could give the policymakers confidence that inflation is sustainably back on target for the long-term. Nonetheless, we expect inflation to undershoot the 2% target for much of the second half of the year. This should allow the Bank to begin gradually cutting interest rates from the summer onwards, with overall cuts of 100 basis points this year.
“Headline inflation fell to 3.4% in February, driven by a slowdown in food prices. More encouragingly for the Bank of England, core inflation also eased sharply to 4.5%.”
