US Inflation Figures Raise Concerns of Delayed UK Rate Cut

US inflation figures were higher than expected this week, sparking concerns a base rate cut in the UK may now be pushed back. Official data showed an inflation reading of 3.5 per cent for the year to March, which was higher than forecast. A cut in July was expected to be a near certainty, but bets on this reduced to around half after the inflation figures were released on Wednesday. The European Central Bank has also opted to hold interest rates on Thursday, with its next meeting in June.

Economists have said that if the Fed delays interest rate cuts, that could have a knock-on effect in the UK. If the Bank of England cut rates before the Fed, there is a risk of it devaluing the pound which could fuel inflation in the near future. The next Bank of England Monetary Policy Committee (MPC) meeting – where decisions over whether to change rates are taken – is at the start of May. This is followed by a meeting in June, and a further one in August. Any delay to a widely anticipated rates cut will be a blow to the Prime Minister who is relying on a change of economic fortunes to boost his hopes of being re-elected. Rishi Sunak said in April that he wanted to hold an election when people “feel that things are improving”. A cut to interest rates filtering through to mortgage rates would add weight to his argument that the UK had turned the corner

Source: Loan Digest (loandigest.net)

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