The fall in inflation to 2%, the magic number as far as the Bank of England and the increasingly desperate Conservative election campaign are concerned, is unequivocally welcome news.
It’s been a long way from the peak of 11.1% in October 2022 and many difficulties were felt along the way.
The return to Earth raises questions for the bank of englandgovernment, both in the present and the future, and most importantly, in the real world, where families are desperate for relief from relentless cost pressures.
The most immediate issue lies with the Bank, whose Monetary Policy Committee meets today to consider a decision on interest rates that will be communicated at noon on Thursday.
Even with the consumer price index (CPI) rate normalizationno one expects a cut from the current 5.25%.
Although the overall rate has been controlled, mainly by the slower rise in food prices than a year ago, inflation for all services remains at 5.7%.
This is precisely the kind of “sticky” above-target domestic inflation that the Bank always feared would persist after energy price shocks subsided, and why it predicts the rate will actually rise in the second half of the year.
Analysts believe that, far from accelerating a cut at the next meeting in August, this could push the probability back to September, prolonging the discomfort for homeowners abandoning fixed rates and those trying to buy or move.
There may also be a electoral factorwith the Bank reluctant to do anything that might contribute to a feverish environment in which the government claims all the credit for the fall in inflation, while the opposition points to the damage left in its wake.
Having been accused of moving too slowly to raise rates, Governor Andrew Bailey is in no danger of being accused of moving too quickly to lower them.
For Rishi Sunak and his faltering campaign, the news is a shot in the arm as they enter the final fortnight before polling day. He will claim credit for the only promise that was has indisputably been fulfilled.
Given the influence of external factors, mainly the war in Ukraineand the role of the central bank, whose function is to keep rates under control, it is debatable how much it can complain about for not following policies that would have made the situation worse.
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For Sir Keir Starmer and Rachel Reeves, who hope to become the next prime minister and chancellor within 16 days, there is also good news, although they won’t let it show for now. They could be moving to Downing Street at the turn of the economic tide.
Given their dependence on growth to make manifesto promises even remotely match necessary public spending, they will pray that this is the case.
And what about the real world? Away from Westminster and Threadneedle Street, no statistic, even one as important as inflation, will bring relief overnight.
Real prices for food, energy, clothing and rent are about 20% higher than they were three years ago and, for some mortgage payments, have doubled. This has been deeply corrosive to household incomes, increased already worrying inequality in the UK and had a negative impact on the health and wellbeing of the people on whom the economy depends to return to work.
For the first time, British families are poorer in real terms at the end of the Parliament than they were at the start of 2019.
This story originally appeared on News.sky.com read the full story
