- Inflation falls to 2.3% – still shy of the Bank of England’s 2% target
- Core inflation still stubbornly high at 3.9%
- Food inflation down to 2.9% versus 19% this time last year
- Public sector borrowing overshoots at £20.5 billion as NI contributions fall after cuts
Danni Hewson, head of financial analysis at AJ Bell, comments on the latest inflation and public sector finance figures:
“Just like that expectation of a June rate cut has been washed away like confetti after rain-soaked summer wedding. Within minutes of the official inflation numbers hitting our screens market expectation that the MPC could shift the base rate down next month plummeted from 50/50 to just over 10%.
“Prices are rising at their slowest level in almost three years. Food inflation has fallen from a whopping 19% twelve months ago to just 2.9%, which has taken away some of the jeopardy for shoppers when they bring their baskets up to the till.
“Households which have had the benefit of a real term wage increase in the past few months will be feeling a little better about their finances, but things are still expensive, and some services in particular are still delivering unpleasant surprises.
“Strip out those volatile bits from the equation – food and energy costs which caused such misery over the past couple of years – and core inflation is still stubbornly high.
“That’s what rate setters will have to consider before they make their decision, especially with inflation touted to deliver a quick encore later in the summer.”
PUBLIC SECTOR
“If you cut the amount of National Insurance workers are paying into government coffers it stands to reason that shortfall will have to be made up somewhere. In April it meant borrowing had to increase beyond what had been forecast and more than needed this time last year.
“The overall tax take is up and interest payments on all that debt is down but inflation busting wage and benefit increases are putting additional strain on the public coffers.
“Further tax cuts might be a vote winner but figuring out how to pay for them is surely the biggest issue on the table.”
