British inflation could approach the Bank of England’s target of 2 percent when the Office for National Statistics (ONS) releases the latest figures on Wednesday.
The consumer price index (CPI) fell to 3.2 percent in March, compared with the previous year, and forecasters polled by Reuters believe inflation will fall to 2.1 percent in April.
Pantheon Economics predicts a slightly lower figure of 2 percent and Capital Economics thinks this could fall even further to 1.9 percent. The Bank of England’s (BoE) own forecast is 2.1 percent.
Ashley Webb, UK economist at Capital Economics, said: “The release of April’s CPI inflation data next Wednesday could be hugely significant if we are right in thinking that inflation has fallen from 3.00 for the first time in three years. 2% in March to below the 2.0% target. year.
“This will be crucial in determining whether the first rate cut of 5.25% will occur 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.”
The expected lower figures to be released on Wednesday will put further pressure on the Bank of England to cut interest rates from a 16-year high of 5.25 percent.
Policymakers at the central bank have raised interest rates over the past two years in an effort to tackle inflation and aim to return them to 2 percent after they peaked at 11.1 percent in 2022.
The expected fall in inflation will come just days after Ben Broadbent, deputy governor of the BoE, suggested that UK interest rates could be cut as early as this summer.
He said in a speech Monday morning that it is “possible” that borrowing costs will fall this summer if the economy develops as expected.
The economist said the Bank’s nine-member MPC, which votes on potential rate hikes, should assess how potential persistence around wage and services inflation continues to evolve.
He added: “Whatever the priorities of individual members, the MPC will continue to learn from the incoming data and as things continue to evolve its predictions – predictions that suggest that at some point policies will need to be less restrictive – then it is possible that the bank interest rate could be lowered for some time during the summer.”
Earlier this month, Mr Broadbent was among those who voted to keep interest rates at 5.25 per cent, with a 7-2 vote in favor unchanged.
The financial markets have priced in a rate cut by August.
Data released by Kantar on Tuesday showed food price inflation fell to its lowest level since October 2021.
According to analysts Kantar, supermarket prices are 2.4% higher than a year ago, which is a slowdown for the fifteenth month in a row compared to the 3.2 percent in April.
Food inflation is now just 0.8 percentage points above the 10-year average of 1.6 percent between 2012 and 2021, just before prices started rising.
Fraser McKevitt, head of retail and consumer insights at Kantar, said: “Grocery price inflation is gradually returning to what we would consider more normal levels.
“Normally, when inflation is around 3%, we see clear changes in consumer behavior, with consumers switching to cheaper items when the rate rises above this limit, and vice versa when the rate falls.
“However, after nearly two and a half years of rapidly rising prices, it may take a little longer for shoppers to shake off the habits they have learned to manage the cost of living crisis.”