“Today’s data strengthens the case for a continued cautious approach from the Bank of England. While services inflation rebounded, this was largely driven by volatile subcomponents, not reflective of domestic price pressures. Underlying inflationary pressures have yet to show clear signs of strengthening, which is likely to underpin a majority decision within the Monetary Policy Committee to hold interest rates at Thursday’s meeting.
“Motorists have been squeezed by higher petrol prices since March, however this now looks set to reverse as energy prices ease amid progress towards reopening the Strait of Hormuz. Petrol prices are now expected to act as a drag on headline inflation over the coming months. Nonetheless, the adverse impacts of the disruption to energy supplies are already in the pipeline, with household energy bills set to rise by 13% from next month.
“Headline inflation was unchanged in May, coming in at 2.8%. We expect inflation to rise over the coming months, but potentially peak below 4% in the autumn. Beyond this, the outlook is more uncertain and will depend in part on how quickly energy flows normalise.”
