After staying elevated for longer than the US and Europe inflation in the UK has fallen rapidly and in May the consumer price index (CPI) dropped to 2%, the Bank of England’s (BoE) target. While core inflation, which excludes volatile elements like energy and food, remains high that is also heading in the right direction.
Following the publication of the inflation data the Bank of England (BoE) kept interest rates at 5.25% in their June meeting.1This was widely expected due to Prime Minister Rishi Sunak calling a general election in July. The BoE prefers to avoid acting around elections as it does not want to be accused of influencing the outcome of an election, which could undermine confidence in the bank’s independence.
The economic data from the UK is mixed. One encouraging sign is that economic activity, as measured by the Composite Purchasing Managers Index, is signalling a growing economy. However unemployment has risen to 4.4% (from 3.8% in November) while the number of job vacancies is in decline.1
The drop in inflation and comments from the BoE following their June interest rate announcement brought expectations for an interest rate cut forward, possibly in August, which should provide stimulus to the economy and stock markets.