• Inflation falls to lowest level in almost 3 years but underlying components remain high. As such, MPC unlikely to vote to cut Bank Rate in June.
• Mortgage market activity picks up, but affordability constraints remain
• Strong ISA inflow in April, mainly out of instant access accounts rather than net new saving
   

Rate cuts are likely this year, but timing of first cut is not clear

1. The short term picture for the Monetary Policy Committee became more challenging when the latest data showed that whilst annual CPI inflation fell from 3.2% in March to 2.3% in April, underlying components remained stubbornly high - in particular services inflation. This was 5.9% in April, only marginally down from 6.0% in March, and not in line with the Bank’s expectation that it would moderate in coming months and be below 5% in September. Markets adjusted their expectations to just one 25 basis point cut to Bank Rate this year after this data release.
    
2. There had been no new labour market data since the last Market Update paper. Unemployment was  4.3% in January to March 2024, up from 3.8% in the three months to December, while the number of vacancies has been falling for 22 consecutive months. The Bank expects labour market conditions to continue to ease, but they remain relatively tight by historical standards.
    
3. This growth in real incomes is expected to have supported growth in the first half of 2024. Combined with the expectation that monetary policy will be loser over the next few years the Bank expect GDP growth to be stronger than forecast back in February. However, demand is still expected to be weaker than potential supply levels, resulting in a degree of slack in the economy, and weaker price inflation.
    
4. With the election campaign now in full swing, there is a lot of focus on the potential decisions around taxes and spending of the different parties, though unsurprisingly the politics means we aren’t getting an honest debate. Both main parties appear to be committing to letting taxes rise by not increasing income tax thresholds. If there aren’t to be huge cuts to public services, and if the commitments to controlling debt aren’t changed, further tax rises would be necessary. Analysis by the Resolution Foundation concludes that “with an uncertain economic outlook, pressures on spending unlikely to dissipate, taxes at historic highs and headroom against getting debt falling already wafer thin, it is likely to be an unenviable fiscal inheritance for winner of the election.”

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