Blown off-course by inflation, wages data
Admittedly, two of the Bank’s nine-strong Monetary Policy Committee already voted for a first rate cut at their meeting earlier this month, arguing that inflation has come far enough off the boil.
But data since then have shown that both inflation and wages — the Bank’s two biggest bugbears — failed to come down by as much as expected in April. As such, a June cut — which had seemed at best a toss-up — looks harder to justify.
“I think it would be possible to cut in an election campaign if that was what the markets expected,” Michael Saunders, chief U.K. economist with Oxford Economics, told POLITICO.
But, he noted, such expectations have been scaled back since last week’s numbers, which showed inflation still above target at 2.3 percent. And even that headline rate was flattered by the lowering of energy regulator Ofgem’s reference price cap. Excluding energy and food prices, inflation is still running at 3.9 percent, and services inflation — which is the key variable now that the spike in energy and food has unwound — barely eased at all, running at 5.9 percent.
Prime Minister Rishi Sunak took much of the country — and many of his colleagues — by surprise last week, calling a snap election for July 4, some four months earlier than expected. The decision implied that another four months of steady but unspectacular growth were unlikely to have a meaningful impact on voters’ behavior.
And while the economy has now pulled out of recession and is clearly growing again, the average household’s finances are still strained: Saunders — himself a former MPC member — noted that, for the rest of this year, the average mortgage will still actually be getting more expensive, as fixed-rate deals struck two years ago in times of easy money reset at sharply higher levels. That means there’s less scope for a feel-good factor among a section of the population that is often Conservative-inclined.
