UK RPI MoM Actual 0.2% (Forecast 0.15%, Previous 1.7%)

UK RPI MoM Actual 0.2% (Forecast 0.15%, Previous 1.7%)

The Bank of England (BoE) is under mounting pressure to cut interest rates following a series of disappointing economic data points. The latest figures suggest that the UK economy is struggling under the weight of tax increases and the ongoing trade war with the United States, led by President Donald Trump. This has led to a significant slowdown in economic activity and a decline in employment.

The Retail Prices Index (RPI) month-on-month (MoM) inflation rate for May 2025 was reported as 0.2%, which is higher than the forecasted 0.15% and a significant drop from the previous month's 1.7%. This rise in inflation is attributed to various factors, including the recent surge in oil prices due to geopolitical tensions in the Middle East. However, the BoE expects this "hump" in inflation to be temporary, with a return to the 2% target by early 2027 [1].

The BoE's Monetary Policy Committee (MPC) is set to maintain interest rates at 4.25% this week, according to economists polled by Bloomberg. However, market bets indicate an 80% chance of a rate cut in August, up from 40% at the start of June. This increased probability is due to the deteriorating economic conditions, with the economy shrinking in April and employment figures showing a significant drop in May [1].

Despite the elevated inflation rates, the BoE is likely to adopt a dovish tone in its statement, emphasizing the stagnating economy and weak payrolls. This shift in guidance could encourage markets to fully price in an August rate cut. Additionally, the recent turmoil in the Middle East, which led to a spike in oil prices, may provide further justification for the BoE to pause on rate cuts [1].

The UK economy is expected to face challenges in the coming months, with inflation rates projected to rise to 3.2% in 2025 before falling to 2.1% in 2026. This indicates a gradual recovery in the economy, with inflation rates returning to more manageable levels by the end of the decade [2].

References:
[1] https://www.bloomberg.com/news/articles/2025-06-16/dire-uk-data-ramp-up-pressure-on-boe-to-keep-cutting-rates
[2] https://www.statista.com/statistics/306720/cpi-rate-forecast-uk/