Economists predict inflation could fall below BoE target of 2%, but will interest rates fall?

Economists have predicted that inflation could fall below the Bank of England’s target of 2% in more than three years.

On Wednesday the Office for National Statistics (ONS) will release data as to how fast prices have been falling over the past month in the UK.

According to a consensus compiled by Pantheon Macroeconomics, the rate of Consumer Prices Index (CPI) inflation could have come in at around 1.9% in June, economists believe.

The Bank of England (BoE) governor Andrew Bailey has previously said that once inflation falls below their target then this could well signal lower interest rates.

Last month the BoE’s Monetary Policy Committee (MPC) “sprang no surprises with their decision to hold Bank Rate steady for the seventh straight meeting,” Michael Brown, senior research strategist at Pepperstone told us.

Sandra Horsfield, an economist for Investec said, “After nearly three years of running above target, in May, UK CPI inflation returned to the Bank of England’s target of 2%. This is indisputably good news.”

“Yet jubilation about this must be tempered: the ‘cost-of-living crisis’ is far from over for some.”

“The new Labour government will need to factor ongoing cost-of-living pressures in for some time yet, even if CPI inflation stays broadly on target,” she added.

James Smith, developed market economist for ING, said, “Policymakers are still almost exclusively focused on services inflation, and it’s the one remaining release of this data that will determine whether the Bank can cut rates in August.”