Base rate unmoved by rising inflation and contracting services sector

by Gill Montia

Story link: Base rate unmoved by rising inflation and contracting services sector

As the Bank of England’s Monetary Policy Committee begins its monthly review of the base rate, analysts are overwhelmingly pessimistic about the likelihood of a cut.

In a poll conducted by Reuters, 69 of the 71 experts questioned said they expected the base rate to remain its current level of 5%, in June.

Consumers and businesses continue to feel the pain of higher interest rates but the threat of higher inflation is expected to win the day, with predictions that inflation will rise from its current 3% level this month, driven by oil and food prices.

Meanwhile, the UK services sector, which accounts for more than two-thirds of the economy, is showing signs of a slowdown.

A report from the Chartered Institute of Purchasing & Supply published this week shows that in May, its Purchasing Managers’ Index (PMI) fell to 49.8, from 50.4 in April.

The index is based on five indicators: new orders, inventory levels, production, supplier deliveries, and the employment environment.

Broadly speaking, a PMI below 50 indicates that industry is contracting.