Ben Brettell, Senior Economist, Hargreaves Lansdown:
As the dust settles on the election result, economists’ focus returns to the data this week, with inflation and labour market figures both released ahead of the MPC’s latest policy meeting.
Today’s numbers from the ONS showed inflation jumped to a fresh four-year high of 2.9%, as a fall in the price of motor fuels failed to offset higher prices for energy, food and recreational goods. Lower air fares also had a downward effect as the Easter holiday drops out of the calculation. Economists had expected the rate to remain at 2.7%.
Wage data out tomorrow is expected to confirm pay is shrinking in real terms, and a report out yesterday from Visa confirms consumers are under pressure, with spending falling 0.8% year-on-year in May.
The general mood on the economy has become one of caution over the past few weeks, with first-quarter GDP figures disappointing, consumer spending looking weaker and Brexit-related uncertainty looming large. However, growth is expected to pick up somewhat in the second quarter, and it looks like the election result could make for a ‘softer’ Brexit, which could prove positive for the economy.
Bank of England policymakers had previously said they expect inflation to peak at a little below 3% in the fourth quarter, but the evidence so far points to a sharper rise than anticipated. Just one member of the MPC, Kristin Forbes, has been voting for higher interest rates, and she leaves committee next month. The balance of probability suggests the Bank will continue to ‘look through’ higher inflation and leave rates on hold to support the economy, but if inflation continues to surprise we could start to see members revising their positions.