Unexpected strength in UK services inflation has left the Bank of England’s meeting on Thursday on a knife edge, as policymakers weigh whether to push ahead with the first reduction in interest rates since 2020.
With headline inflation sitting at the 2 per cent target for two successive months, the Monetary Policy Committee has an opening to deliver a quarter-point interest rate cut to 5 per cent — something BoE governor Andrew Bailey has been suggesting since March is on the cards this year.
However, policymakers have been wavering because services inflation — a key gauge of domestic pricing pressures — has repeatedly overshot BoE forecasts. Huw Pill, BoE chief economist, warned this month that the main drivers of UK inflation were showing “uncomfortable strength”.