Rates caution

Retail economist says inflation may rise to 3%

Harvir Dhillon
Harvir Dhillon: Bank may delay rate cuts (pic: Terry Murden / DB Media Services)

Inflation may remain a persistent challenge for the Bank of England and could rise to 3% before the end of the year, it has been claimed.

The growth in prices has fallen sharply to 2.3% from its 11.1% peak in October 2022, but Harvir Dhillon, an economist at the British Retail Consortium, said a pick up in economic activity could see it turn back upwards.

He said this will encourage the Bank of England to resist pressure to cut interest rates. The data now points to just one interest rate cut this year, he said.

While there had been expectations of a rate cut in June it is now widely expected that the Bank will take no action next month because of the general election.

Some still believe a cut will come in August, but Mr Dhillon says even that could be too early. He thinks the Bank will wait for revised labour market calculations to emerge.

“If there is going to be a cut, then September is looking more likely,” he said in an interview with Daily Business in Edinburgh where he had been meeting members at the offices of Burness Paull.

“It hinges on inflation and wage growth data. If the economy can weather rates of 5.25% then how much scope is there for interest rates to fall? That holds up the ‘higher for longer’ argument and there is potential for inflation to creep up to 3% by the year end.

“We won’t see the drastic increase that we saw previously, but it will be above target and that may cause the Bank to hold off on interest rate cuts.”

He said retailers were largely cautiously optimistic, though rising costs of essentials such as mortgages and rents meant there was less money available for discretionary spending.

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