(Bloomberg) — The UK is less of an outlier in terms of its inflation rate than recent data and analysis would suggest, according to Panmure Gordon.
While both headline and core inflation remain higher than expected and the strongest in the Group of Seven nations, Panmure’s Chief Economist Simon French said the significance of energy bills in the UK is probably underestimated by some commentators.
“Much of the UK’s outlier status can be explained by energy bills alone — which are due to fall sharply from next month, and again in September,” said French in a note to clients Friday.
The analysis will provide some provide some ammunition to the doves on the Bank of England’s Monetary Policy Committee. They’re arguing that the central bank already has lifted interest rates too high and that the full impact of higher borrowing costs will damage the economy in the months ahead. Last month, Swati Dhingra and Silvana Tenreyro voted to keep interest rates unchanged.
For now, inflation readings above expectations and the BOE’s forecasts have spurred bets that the majority of policy makers will keep lifting the key rate through the summer.
Panmure’s note also challenges market expectations that the BOE’s base rate will need to rise to 5.5%. Traders ramped up their bets after official inflation data last week surprised to the upside, pushing up the cost of mortgages and other loans.