Smaller and slower falls in inflation and interest rates

We still think inflation will fall faster than the Bank of England is expecting, but in the light of April’s CPI release we now expect the downward trend to be slower and smaller. As a result, we have shifted back our forecast for the timing of the first interest rate cut from 5.25% from June to August, we now expect rates to be cut slower and we have revised up our end-year forecasts for gilt yields and the pound. Even so, our inflation forecast is still consistent with rates falling to 3.00% instead of 4.00% as investors expect.