The Bank of England might cut interest rates “as soon as this month” due to declining costs in the services sector, according to a closely monitored survey.
The S&P Global UK services PMI revealed that input cost inflation for British services companies grew at its slowest pace since February 2021.
Last month, activity in the UK’s services sector expanded at a slower rate, with easing new business orders bringing the reading down to 52.9 in May from 55 in April, which was above economists’ estimates.
Joe Hayes, principal economist at S&P Global, noted, “Of particular interest to the immediate outlook for the UK economy will be the price measures, with the Bank of England potentially moving to cut interest rates as soon as this month.”
“The PMI surveys show prices for UK services rising at the slowest pace for over three years. For three consecutive months now, selling price inflation in the service sector has eased – a very encouraging sign for the Monetary Policy Committee, suggesting that services prices are moving in the right direction.”
Thomas Pugh, economist at RSM UK, added, “The takeaway from this is that April’s sticky services inflation was probably a direct response to the increase in the minimum wage, rather than a reflection of underlying price pressures. Services inflation should slow over the next few months, setting the stage for the Bank of England to cut interest rates this summer.”
