Inflation’s 3% Splash: The Bank’s Chill Strategy
Sure, inflation climbed to a crisp 3% – the tallest splash in March‑2024 – but it’s not putting the Bank of England on a “rate‑frozen” diet. In fact, the Bank’s still eyeing more cuts on interest rates for the rest of 2025.
Why Inflation Is Staying Above the 3% Band
A mix of factors is pushing prices higher this year, and most of it is temporary:
- Employer National Insurance Contributions and the National Living Wage jumped in April – everyone’s been keeping an eye on that.
- Household utility costs are doing a full‑blown “raise‑the‑price” makeover.
- From April, the average water bill will be up by £123 a year – that’s a whopping 26% hike. And energy bills? They’re getting a 5% cap increase, meaning an extra £85 per household.
Even with these bumps, the Bank isn’t throwing off its plan to keep cutting rates. Why? Because these hikes are regulated price increases, not runaway inflation. The Bank’s had to adjust rates before to tackle global economic wobble and supply‑chain hitches. This current rise is a one‑off, tied mainly to government spending and utility price changes.
Looking at the Bigger Picture
Remember the 2021‑2023 rollercoaster? Inflation skated over 9% for 12 straight months and hit a 41‑year high of 11.1% in October 2022. Fast‑forward to now: a 3‑4% range isn’t perfect, but it’s far from disaster‑level.
Bank officials now expect inflation could wiggle up to about 4% by the end of Q3. Still, no panic signs. When the Monetary Policy Committee last gathered, all nine members voted for a cut, with two pushing a double cut of 0.5%. That means more rate cuts are likely in 2025 – perhaps one every quarter.
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