“While inflation is expected to accelerate over the coming months, the bar for the Bank of England to raise interest rates remains high. Weakness in the labour market and the wider economy should limit the extent to which inflation becomes more persistent. If the conflict in the Middle East concludes in the coming weeks, the Bank could keep rates on hold until the second half of the year and resume its easing cycle in November.
“Disruptions to energy supplies are set to push inflation higher. Households will be temporarily shielded from rising gas prices, with energy bills set to fall in the second quarter. However, businesses have faced an immediate increase in energy costs, which could lead them to pass higher prices onto consumers. The disruption to cargo traffic could also affect non‑energy goods, such as fertilisers, creating an additional upside risk for food prices in the near term.
"Inflation remained unchanged at 3.0% in February, with lower fuel and food prices offset by higher clothing and goods. We expect inflation to ease slightly over the coming months and fall to around 2.5% in April. There is a potential risk of a sharp rebound in the third quarter onwards, if disruptions to energy supplies persist, which could see inflation peak below 4% then.”
