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

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Economists see the latest U.K. inflation print, out Wednesday, taking the headline rate near or even below the Bank of England’s 2% target. That is largely due to energy prices, which fell sharply in April. Markets remain divided on the chance of a June interest rate cut, and the level of services inflation may be key. A shopper selects fresh produce from a market stall in the Kingston district of London, UK, on Monday, May 20, 2024.  Bloomberg | Bloomberg | Getty Images

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

That would represent a plunge from the current level of 3.2% and could “make 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 electricity and gas bills came down by 12% at the start of April.

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

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

‘Momentous’

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

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

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

The Bank of England held interest rates steady at its May meeting, 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 Central Bank have done.

BOE Governor

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