Odds of more Bank of England interest rate cuts fall as food inflation rises
The Bank of England's (BoE) readiness to cut interest rates further has been put into further doubt as food inflation in the UK has risen for the fourth month in a row, in yet another sign of sticky inflation.
The annual rate of food price rises hit 2.8% this month, after a 2.6% rise in April, according to the latest shop price data from the British Retail Consortium (BRC).
Analysts at Pantheon Macroeconomics argued that persistent inflation and a sharp rise in the minimum wage will likely keep the BoE from cutting interest rates at the current rate. The central bank's base rate currently stands at 4.25% following a 25 basis point cut earlier this month.
'The UK environment is more inflationary than before the pandemic. Only one more rate cut this year looks fair,' said Robert Wood and Elliott Jordan-Doak at Pantheon.
Read more: Gold prices fall after Trump delays EU tariffs
The primary inflation measure, the consumer price index (CPI), stood at 3.5% in the 12 months to April, a higher-than-expected increase from the previous month. That means price increases are moving away from the BoE's 2% target.
Barclays (BARC.L) has also revised its interest rate forecasts following the higher-than-expected inflation data. The bank no longer expects the BoE to cut rates in June and now predicts the base rate will drop to 3.5 % by February 2026, rather than by the end of this year as previously forecast.
Huw Pill, who voted against the BoE's decision earlier this month to lower the base rate by 25 basis points to 4.25%, has previously said that Threadneedle has been cutting rates too quickly, given the inflation outlook.
'I remain concerned about upside risks to the achievement of the inflation target," he said.
Clare Lombardelli, deputy governor of the BoE, and Megan Greene, an external member of the Bank's monetary policy committee (MPC), both said that while they supported the decision to lower interest rates to 4.25%, they were reluctant to take further action without more evident signs of inflation subsiding.
'I don't think we can pull out the ticker tape and suggest it [inflation] is transitory,' Greene said. 'There is still reason to be concerned about inflation persistence.'
Read more: Trending tickers: Tesla, Nvidia, GameStop, Palantir and Whitbread
The uptick in grocery inflation was primarily driven by higher fresh food prices, which rose by 2.4% compared with 1.8% the previous month. In contrast, ambient food inflation cooled slightly, falling to 3.3% from 3.6% in April.
'While overall shop prices remain unchanged in May, food inflation rose for the fourth consecutive month,' said Helen Dickinson, chief executive of the BRC. 'Fresh foods were the main driver, and red meat eaters may have noticed their steak got a little more expensive as wholesale beef prices increased.'
Despite the increase in food prices, overall shop prices remained 0.1% lower than a year ago—unchanged from April—reflecting continued deflation in non-food goods. Non-food prices declined by 1.5% in the year to May, deepening from the 1.4% drop seen in April. Electrical goods in particular saw faster price falls, with retailers ramping up promotions to boost sales ahead of potential disruption from US tariffs.
'Prices fell faster for electricals as retailers tried to encourage spending before any potential knock-on impact from US tariffs,' the BRC said.Sign in to access your portfolio
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