INFLATION TO STAY ABOVE 3% AND COULD EVEN RISE FURTHER, ECONOMISTS PREDICT

Inflation is set to stay well above 3 per cent when the latest figures are released this week.

The Office for National Statistics (ONS) will unveil May’s consumer prices index (CPI) figure on Wednesday.

The previous figure stood at 3.5 per cent, though the ONS later admitted that this was an error and that it should have been 3.4 per cent.

Some economists think that May’s figure will be a little lower and some expect it to be slightly higher, but the consensus is it will remain well above 3 per cent.

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Raj Badiani, of S&P Global Market Intelligence, said he expects the May inflation figure to stand at 3.6 per cent, before another rise to 3.7 per cent in June.

“Higher headline inflation in May and June reflects the impact of some firms passing on higher payroll costs to consumers,” he said.

But he added: “There is some positive inflation news, which will help to lower inflation in the second half of this year. A major development is household energy bills are set to fall by 7 per cent from the start of July, confirmed by the energy regulator Ofgem.”

Paul Dales of Capital Economics, however, expects the May inflation figure to be as low as 3.2 per cent, and then expects the figure to be between 3 and 3.5 per cent for the rest of the year.

He said part of why inflation was so high in April was because of the timing of Easter, which added to airfare and holiday costs.

“This Easter timing effect will reverse in May, subtracting 0.2 percentage points from CPI inflation.”

Pantheon Macroeconomics suggests May’s inflation figure will be 3.4 per cent.

“A correction to Vehicle Excise Duty and airfare falls will be partly offset by strong food and clothes prices,” it said in a note.

Inflation can have a key bearing on what happens to the Bank of England base rate – sometimes referred to as interest rates – and subsequently mortgage rates.

Interest rates were cut in May to 4.25 per cent, but with inflation set to remain high, experts do not think there will be another cut when the Bank’s economists next meet on Thursday.

Households with mortgages will be among those hoping that interest rates fall sooner rather than later.

Some major banks are cutting mortgage rates at the same time others are upping them in turbulent times for the market.

Once interest rates start to go down again, there is a chance that mortgage rates will follow.

But some experts now think there may end up being just one more interest rate cut in 2025.

2025-06-16T05:17:21Z