Odds of more Bank of England interest rate cuts fall as food inflation rises
The annual rate of food price rises hit 2.8% this month, after a 2.6% rise in April, according to the latest shop price data from the British Retail Consortium (BRC).
Analysts at Pantheon Macroeconomics argued that persistent inflation and a sharp rise in the minimum wage will likely keep the BoE from cutting interest rates at the current rate. The central bank's base rate currently stands at 4.25% following a 25 basis point cut earlier this month.
'The UK environment is more inflationary than before the pandemic. Only one more rate cut this year looks fair,' said Robert Wood and Elliott Jordan-Doak at Pantheon.
Read more: Gold prices fall after Trump delays EU tariffs
The primary inflation measure, the consumer price index (CPI), stood at 3.5% in the 12 months to April, a higher-than-expected increase from the previous month. That means price increases are moving away from the BoE's 2% target.
Barclays (BARC.L) has also revised its interest rate forecasts following the higher-than-expected inflation data. The bank no longer expects the BoE to cut rates in June and now predicts the base rate will drop to 3.5 % by February 2026, rather than by the end of this year as previously forecast.
Huw Pill, who voted against the BoE's decision earlier this month to lower the base rate by 25 basis points to 4.25%, has previously said that Threadneedle has been cutting rates too quickly, given the inflation outlook.
'I remain concerned about upside risks to the achievement of the inflation target," he said.
Clare Lombardelli, deputy governor of the BoE, and Megan Greene, an external member of the Bank's monetary policy committee (MPC), both said that while they supported the decision to lower interest rates to 4.25%, they were reluctant to take further action without more evident signs of inflation subsiding.
'I don't think we can pull out the ticker tape and suggest it [inflation] is transitory,' Greene said. 'There is still reason to be concerned about inflation persistence.'
Read more: Trending tickers: Tesla, Nvidia, GameStop, Palantir and Whitbread
The uptick in grocery inflation was primarily driven by higher fresh food prices, which rose by 2.4% compared with 1.8% the previous month. In contrast, ambient food inflation cooled slightly, falling to 3.3% from 3.6% in April.
'While overall shop prices remain unchanged in May, food inflation rose for the fourth consecutive month,' said Helen Dickinson, chief executive of the BRC. 'Fresh foods were the main driver, and red meat eaters may have noticed their steak got a little more expensive as wholesale beef prices increased.'
Despite the increase in food prices, overall shop prices remained 0.1% lower than a year ago—unchanged from April—reflecting continued deflation in non-food goods. Non-food prices declined by 1.5% in the year to May, deepening from the 1.4% drop seen in April. Electrical goods in particular saw faster price falls, with retailers ramping up promotions to boost sales ahead of potential disruption from US tariffs.
'Prices fell faster for electricals as retailers tried to encourage spending before any potential knock-on impact from US tariffs,' the BRC said.Sign in to access your portfolio
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Bloomberg
an hour ago
- Bloomberg
Bank Levies Aren't the Answer to the UK's Fiscal Needs
As Britain scrambles to plug its fiscal gaps, banks are starting to worry that Chancellor of the Exchequer Rachel Reeves will once again target their industry. The political attraction is clear when the Bank of England is paying the industry billions of pounds in interest on idle cash on its books, a fact bemoaned by voices on the left and right. But a new bank tax would generate more headlines — and sour sentiment — than hard cash. If lenders were extracting excess profits from the state, taxation would be better than messing with central bank interest payments and their role in monetary policy. The trouble for Reeves, however, is that the evidence for finance plundering the BOE is flimsy. Moreover, even a heavy-handed extra levy on bank earnings would raise pitiful amounts compared with what the UK needs. Still, the budget pressure is such that Reeves might announce some kind of levy, alongside a slate of more industry-friendly policies, as part of the government's strategy for financial services at the annual Mansion House dinner on Tuesday night.
Wall Street Journal
4 hours ago
- Wall Street Journal
USD/JPY Builds Bullish Momentum Before U.S. CPI, Fed Speeches
0032 GMT — USD/JPY's bullish momentum builds ahead of U.S. CPI due out today and a slew of Fed officials' speeches this week, StoneX's Matt Simpson says in a commentary. Chart patterns and positioning data are also starting to favor further upside for USD/JPY, though volatility is likely as markets digest the data and political reaction, the senior market analyst says. On the charts, USD/JPY appears intent on testing the December low near 148.65 or the key 149.00 handle, Simpson says. However, the 200-day exponential moving average at 147.91 could provide initial resistance in the near term, Simpson adds. USD/JPY edges 0.1% lower to 147.62. (
Yahoo
5 hours ago
- Yahoo
Reeves hails ‘instant impact' for aspiring homeowners as red tape is cut
First-time buyers are set to see an 'instant impact' from the drive to kickstart economic growth, Chancellor Rachel Reeves is expected to say. More mortgages will be available at more than 4.5 times a buyer's income following recent Bank of England recommendations that some lenders can offer more high loan-to-income mortgages if they choose to. This will create up to 36,000 additional mortgages for first-time buyers over the first year, the Government said. Britain's biggest building society – Nationwide – announced last week that it is aiming to increase its high loan-to-income lending limit. From Wednesday, eligible first-time buyers can apply for Nationwide's Helping Hand mortgage with a £30,000 salary, down from £35,000, and joint applicants with a £50,000 combined salary – down from £55,000. It is estimated this will support an additional 10,000 first-time buyers each year. The changes will sit alongside the creation of a permanent mortgage guarantee scheme, delivering on a manifesto commitment, and a review of Financial Conduct Authority (FCA) lending rules that could allow prospective buyers' records of paying rent on time to be used to show they can afford mortgage repayments. Reforms will be outlined in Leeds ahead of Ms Reeves's Mansion House speech on Tuesday evening. Speaking in the City of London, the Chancellor is expected to say: 'I welcome the recent changes the (Bank of England) Financial Policy Committee has announced to the loan-to-income limit on mortgage lending, which the PRA (Prudential Regulation Authority) and FCA are implementing immediately. 'With an instant impact for consumers, such as Nationwide offering its Helping Hand mortgage to more first-time buyers – supporting an additional 10,000 each year.' Ms Reeves is expected to add: 'Today, I have placed financial services at the heart of the Government's growth mission. 'Recognising that Britain cannot succeed and meet its growth ambitions without a financial services sector that is fighting fit and thriving. 'And I have been clear on the benefits that that will drive. 'With a ripple effect that will drive investment in all sectors of our economy and put pounds in the pockets of working people.' Nicholas Mendes, mortgage technical manager at broker John Charcol, said: 'The decision to widen access to Nationwide's Helping Hand mortgage by lowering the income thresholds will offer an immediate and practical benefit to a group of people who have often found themselves just on the wrong side of affordability criteria. 'For someone earning £30,000 on their own, or couples on a combined income of £50,000, this change could be the difference between continuing to rent and finally being able to move into a home of their own. 'It acknowledges the gap between headline figures and real life, and it shows a willingness to make the system better reflect the pressures people are actually under. 'It will also bring particular value to those in stable, lower-paid roles that are so essential to society but are often overlooked by traditional lending models. 'People working in care, education, retail, and public service are typically in long-term employment and manage their finances carefully, yet they are the very people who have found the doors to homeownership closed to them. 'This reform suggests that financial discipline is being recognised more broadly than by salary alone, and that is a very welcome shift. 'Equally, the recognition that a person's history of paying rent should be considered when assessing their ability to repay a mortgage is something many in the industry have been calling for over many years. 'If someone has shown, consistently and over time, that they can manage rental payments at a level equal to or even above the mortgage they are applying for, then it stands to reason that this should be considered a reliable indicator of affordability.' Paula Higgins, chief executive of the HomeOwners Alliance, said the Government should 'turn its attention to fixing the Lifetime Isa (Lisa)'. She said: 'Right now, anyone forced to withdraw their savings early faces an unfair penalty.' Ms Higgins added: 'And the £450,000 property price cap hasn't moved since Lisas launched in 2017, despite soaring house prices, particularly in the South East. 'Reforming Lisas would make a real, practical difference to those trying to get on the ladder.' Henry Jordan, Nationwide's director of home said: 'Our changes mean more people, particularly those on lower incomes, could become eligible for a mortgage. 'We also hope our commitment to further lending provides a boost to the UK's housebuilding ambitions as well as encouraging other lenders to increase support for those looking for a home of their own.' Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
