Inflation to fall back to 2% target in Q2

The UK’s inflation rate is likely to fall to 2% in the second quarter of 2024, which would bring it in line with the Bank of England’s long-term target.

However the Bank said this might only be a temporary dip, as it’s likely inflation will rise again afterwards.

Factors causing the inflation rate to surge again could be higher shipping costs due to Red Sea disruption, increases to the minimum wage, as well as higher business rates.

Inflation figures for February will be released on 20 March, and the MPC will reveal its rate decision on 21 March.

Susannah Streeter, head of money and markets, Hargreaves Lansdown, said: ”We’re on a downwards escalator, with another drop in inflation expected, and an accelerated move lower forecast for the months to come.

“But Bank of England policymakers are still set to hold their position, and grip on to higher interest rates. They will want more evidence that wage growth will ramp down further before they budge and bring in a rate cut.”

Hargreaves Lansdown expects the Bank of England to cut the base rate in June or August.

Streeter added: “Although a June cut is being pencilled in, a reduction in rates in August may be more likely, when the Bank also publishes the summer monetary policy report.

“Of course, the reticence over reducing rates sooner, given lacklustre growth, does mean that inflation could dip below target and that the economy will take longer to get going again, but for now it’s a risk that policymakers seem willing to take.”