Economists expect data this week to show a June jump in inflation, in a development which would boost the hawks on the Bank of England ahead of a crucial decision on interest rates next month.
Consumer price index (CPI) inflation will rise from 2.4 per cent in April and May to 2.6 per cent in June, according to consensus forecasts. The latest data will be published by the Office for National Statistics on Wednesday, providing the Bank with one of the last major pieces of economic data ahead of its 2 August monetary policy committee (MPC) meeting.
A rise in inflation would add to the case put forward by multiple Bank of England economists for an interest rate hike in the near term. Governor Mark Carney, chief economist Andy Haldane and others on the MPC have made remarks recently hinting that they may vote to raise rates.
The MPC hawks argue that rising wage pressures from a tight labour market justify withdrawing stimulus.
However, the view that domestic inflationary pressure is increasing is highly contentious among economists, with recent rises in oil prices – which feed through to petrol prices –further muddying the waters.
A decision to raise rates would take place against a backdrop of relatively weak economic growth, as well as the potential for disruption from the Brexit process and the looming possibility of a global trade war.
Analysis by EY Item Club to be published today will predict GDP growth for the current year of only 1.4 per cent, the weakest since 2012, thanks to higher inflation, lower consumer spending, and a moderation in growth in the Eurozone economy.
Mark Gregory, EY’s chief economist, said: “Businesses should be prepared for a low growth economy over the next three years. Regardless of the outcome of the Brexit negotiations, the resulting adjustment is likely to act as a drag on the economy.”
Source: City A.M.