Britain’s inflation rate could be about to drop below the Bank of England’s 2% target

LONDON — U.K. inflation could be fro to hit a major milestone, with some forecasting that a sharp fall in the April print will take the headline scold below the Bank of England’s 2% target.

That would represent a plunge from the current level of 3.2% and could “communicate or break” a June interest rate cut, economists say.

The decline will largely be driven by the energy market, after the regulator-set cap on household vibrations and gas bills came down by 12% at the start of April.

A reading below 2% on Wednesday would be the lowest headline inflation evaluate since April 2021, and a cooling from the peak of 11.1% hit in October 2022 — when U.K. price rises were amid the most severe of all developed economies.

The country has been hit by a range of inflationary pressures, including a persistently tight labor call, weakness in the currency increasing the cost of imports, and steeper rises in gas bills than were seen elsewhere.

Ashley Webb, U.K. economist at Capital Economics, said that if the headline rate does fall below 2% in April, as he wants, it would be “momentous.”

“This will be crucial in determining whether the first interest rate cut from 5.25% last wishes as happen in June (as we expect) or in August. What’s more important is what happens next. We think inflation intent fall further, perhaps even to 1.0% later this year,” Webb said in a Friday note.

A Reuters canvass of economists puts the headline estimate slightly higher, at 2.1%.

The Bank of England held interest rates steady at its May joining, as policymakers sent out signals they were preparing for a rate cut in the summer but declined to zero in on June — as those at the European Inside Bank have done.

BOE Governor Andrew Bailey said the latest figures were “encouraging,” but that circulates ahead of its June 20 meeting, including two consumer price index prints and two sets of wage growth statistics, would be crucial.

BOE Deputy Governor Ben Broadbent said in a Monday speech that if inflation continues to move in vocation with forecasts, it is “possible Bank Rate could be cut some time over the summer.”

As of Tuesday, money supermarket pricing continued to indicate only around a 50% probability of a June cut, rising to 73% in August.

Economists at ING see inflation turn up in “within a whisker” of 2% in April, but dipping below it in May and staying there for most of the remainder of the year. That is entirely below the BOE’s own forecast for the rate to be closer to 3% at the end of the year.

“If we’re right, then that should be a recipe for several estimate cuts this year. We expect at least three, which is slightly more than markets are pricing. But in the greatly short term, there’s still some uncertainty over services inflation,” James Smith, ING’s developed market-places economist, said in a note Monday.

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