Welcome to Extreme Investor Network, where we bring you unique insights and analysis on the latest economic trends and developments. Today, we’re diving into the recent news that U.K. inflation has fallen to the Bank of England’s target of 2.0% in May, according to the Office for National Statistics. This marks the last key economic measure ahead of the national elections in July.
The headline reading declined from 2.3% in April, meeting the 2% expectations of economists polled by Reuters. Sterling saw a slight rise after the release, trading at $1.2721 by 7:33 a.m. London time. Services inflation, a closely watched metric by the BOE, stood at 5.7% in May, down from 5.9% the previous month. Core inflation, excluding certain factors like energy and food, dipped to 3.5% from 3.9% in April.
The decline in food prices was a contributing factor, while car fuel costs continued to rise. Unseasonably bad weather led to a slower increase in grocery sales, as reported by U.K. market research firm Kantar.
Looking ahead, Azad Zangana, senior European economist and strategist at Schroders, warned of potential upward pressure on inflation in the second half of the year as the U.K. phases out its energy price cap. Zangana even suggested that the Bank of England could surprise the market with a rate cut at its upcoming meeting on Thursday.
As the U.K. prepares for its general election, with polls indicating a potential win for the opposition Labour party, the economic landscape remains uncertain. Markets are now pricing in a near-term interest rate cut, with economists and financial markets expecting a trim in August or September.
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