Higher interest rates starting to bite

The data released over the last month have generally retained a strong tone. However, there have been a few indications that higher interest rates may be starting to bite. Retail sales fell by a monthly 1.8% in January, while mortgage approvals have recently weakened. Meanwhile, CPI inflation fell from 3.0% to 2.7% in January, with price cut announcements by energy suppliers increasing the chances that inflation will fall below 2% in the summer. Interest rates are still likely to rise to 5.5%, perhaps in March. But the likelihood of further hikes thereafter has decreased.